Convertible secondary unchanged as earnings kick off; Coupa weaker; Unity Software active

By Abigail W. Adams

Portland, Me., July 14 – It was a relatively uneventful day in the convertible secondary space with equity markets choppy as the big banks kicked off earnings season.

The first batch of earnings have come in below expectations with the slowdown in deal making taking its toll on JPMorgan Chase’s and Morgan Stanley’s bottom lines.

Sources are hopeful there will be a pickup in activity in the convertible primary market in the second half of 2022 with equity-linked financing providing a cheaper alternative to straight debt.

However, uncertainty remains high in the market with views mixed about the Federal Reserve’s rate hike schedule and a recession.

Equity indexes again opened the day with steep losses but fought back as the session progressed with the Nasdaq Composite index ending in positive territory.

The Nasdaq Composite closed Thursday up 0.03% after falling more than 1.5% in intraday activity.

Other indexes closed in the red but well off the lows of the day, a sign that the market may be finding its bottom, a source said.

The Dow Jones industrial average closed down 143 points or 0.46%, the S&P 500 index closed down 0.3%, and the Russell 2000 index closed down 1.07%.

There was $91 million in reported volume about one hour into the session and $485 million on the tape about one hour before the market close.

While volume has been thin over the past two weeks, there were signs that buyers were returning to the space with a large offers-wanted-in-competition list circulating the market.

“That was good to see,” a source said. “People are putting money to work again.”

However, it was the usual suspect on the top of the volume chart with Southwest Airlines Co.’s 1.25% convertibles due 2025 (Baa1/BBB) continuing to dominate the tape.

Unity Software Inc.’s 0% convertible notes due 2026 remained active although with little movement in price as stock wavered between gains and losses following Wednesday’s steep drop.

Coupa Software Inc.’s 0.375% convertible notes due 2026 were also active with the notes weaker alongside stock.

Southwest dominates

Southwest Airlines’ 1.25% convertible notes due 2025 continued to dominate the tape on Thursday, as they have for much of the last two weeks.

The 1.25% convertible notes continued to trade around 125 with stock slightly softer on Thursday.

There was $43 million in reported volume.

Southwest stock traded to a high of $39.29 and a low of $38.10 before closing the day at $38.46, a decrease of 0.88%.

Index rebalancing was partially responsible for the large volume in the name with the convertible notes added to the Refinitiv Convertible Indices effective Thursday.

However, volume seemed heavy even for an index rebalancing, a source said.

Unity active

Unity’s 0% convertible notes due 2026 remained active in the secondary market although with little movement in price as the company’s stock added to its losses.

The 0% convertible notes continued to trade on a 73-handle.

They were changing hands at 73.25 versus a stock price of $32.70 in the late afternoon, according to a market source.

There was $11 million in reported volume.

Unity stock traded to a high of $33.42 and a low of $31.73 before closing the day at $32.51, a decrease of 0.96%.

Stock losses were incrementally building after a dramatic 17% drop on Wednesday following news the video game software company will acquire ironSource, an app monetization software company, in a $4.4 billion all-stock transaction.

While stock took a hit on the acquisition, the convertible market appeared to have no opinion with Unity’s long-busted 0% notes largely unchanged, a source said.

Coupa weaker

Coupa’s 0.375% convertible notes due 2026 were weaker in active trading on Thursday.

The notes were down about 1.5 points outright.

They were changing hands at 74.75 early in the session with the yield now 8%.

They remained on a 74-handle in the late afternoon.

There was $9 million in reported volume.

Coupa stock traded to a high of $59.14 and a low of $55.82 before closing the day at $57.23, a decrease of 2.64%.

Mentioned in this article:

Coupa Software Inc. Nasdaq: COUP

Southwest Airlines Co. NYSE: LUV

Unity Software Inc. NYSE: U

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