Convertibles secondary quiet; Coupa in focus; airlines, China-based converts under pressure

By Abigail W. Adams

Portland, Me., July 16 – It was a quiet end to the week in the convertibles secondary space with trading volume light as equities continued to pull back from their all-time heights.

There was $51 million in reported volume about one hour into the session and $352 million on the tape about one hour before the market close.

Few names saw concentrated trading activity. However, those that did were trending lower on an outright basis although they were largely unchanged dollar-neutral.

Coupa Software Inc.’s convertible notes were active and coming in on an outright basis as stock slid.

Airlines were also under pressure on Friday as Covid-19 variant concerns put pressure on travel and leisure names.

Southwest Airlines Co.’s 1.25% convertibles due 2025 (Baa1/BBB) and American Airlines Group Inc.’s 6.5% convertible notes due 2025 were down outright in active trading.

While volume in the names was light, Spirit Airlines Inc.’s 1% convertible notes due 2026 and JetBlue Airways Corp.’s 0.5% convertible notes due 2026 sank further below par.

The convertible notes of several China-based companies also continued to take a hit amid concern about delisting and increased regulatory scrutiny in China.

Pinduoduo Inc.’s 0% convertible notes due 2025 were among the most actively traded issues during Friday’s session with the notes continuing to trade below par.

Coupa active

Coupa Software’s convertible notes were active on an otherwise slow day in the secondary space with the notes trading down as stock dropped.

Coupa’s 0.125% convertible notes due 2026 were among the most actively traded names in the secondary space.

The 0.125% notes were changing hands at 151.125 versus an equity price of $220.19.

They traded down to 150.5 versus a stock price of $219.34 in the late afternoon.

There was about $9 million in reported volume.

Coupa’s 0.375% convertible notes due 2026 were also down on an outright basis alongside stock.

The 0.375% notes were down 2.5 points outright.

They were changing hands at 106.75 versus a stock price of $217.18 in the late afternoon.

There was about $5 million in reported volume.

Coupa stock traded to a high of $231 and a low of $215.77 before closing the day at $217.54, a decrease of 3.78%.

In addition to the general weakness in the tech sector, Coupa stock was taking a hit after Morgan Stanley and Piper Sandler analysts lowered their price target on the stock to $345 and $295 respectively.

While the price target was lowered, analysts from both firms maintained their “overweight” rating for Coupa.

Airlines ‘lose altitude’

The convertible notes of several airlines were trading off on an outright basis on Friday with stock under pressure as Covid-19 variant concerns dampened the reopening trade.

“Airlines are losing altitude,” a source said.

However, while down outright, most names were moving inline dollar-neutral.

Southwest’s 1.25% convertibles due 2025 dropped 2 points outright. They were changing hands at 146.25 versus a stock price of $50.45 in the late afternoon.

There was about $6 million in reported volume in the late afternoon.

Southwest stock traded to a high of $52.25 and a low of $49.70 before closing the day at $49.91, a decrease of 3.57%.

American’s 6.5% convertible notes due 2025 were also down about 2 points outright.

They were changing hands at 150.875 versus a stock price of $20.15 in the late afternoon.

There was also a little more than $6 million in reported volume in the late afternoon.

American Airlines’ stock traded to a high of $20.73 and a low of $19.72 before closing the day at $19.79, a decrease of 3.27%

While volume in the names was light, JetBlue’s 0.5% convertible notes due 2026 and Spirit Airlines’ 1% convertible notes due 2026 dropped further below par.

JetBlue’s 0.5% convertible notes were down about 1.5 point outright to 96.5 in the late afternoon.

JetBlue stock traded to a high of $15.70 and a low of $14.78 before closing the day at $14.84, a decrease of 4.75%.

Spirit Airlines’ 1% convertible notes due 2026 also dropped about 1.5 points outright to 92.5.

Spirit Airlines’ stock traded to a high of $28.21 and a low of $26.10 before closing the day at $26.36, a decrease of 5.42%.

China-based names under pressure

The convertible notes of several China-based companies continued to take a hit on Friday alongside their underlying equity.

Pinduoduo’s 0% convertible notes due 2025 were one of the most actively traded names in the secondary space.

The notes were down about 1 point outright. They were changing hands at 97.875 in the late afternoon.

There was about $9 million in reported volume.

After a brief rebound earlier in the week, Pinduoduo’s equity again sold off.

Pinduoduo’s American Depositary Shares traded to a high of $111.53 and a low of $106.56 before closing the day at $107.45, a decrease of 2.97%.

Famed stock picker Cathie Wood of Ark Investment Management has been shedding the holdings of China-based companies in her ETFs and recently warned about a valuation reset.

As of July 16, ARK’s Fintech Innovation ETF had a 2.15% weighting and ARK’s Next Generation Internet ETF had a 1.51% weighting in Pinduoduo.

Mentioned in this article:

American Airlines Group Inc.

Coupa Software Inc.

JetBlue Airways Corp.

JOYY Inc.

Pinduoduo Inc.

Southwest Airlines Co.

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