ZTO convertibles gain outright, flat on swap; Splunk short-duration notes below par

By Abigail W. Adams

Portland, Me., Aug. 25 – It was a relatively active day in the convertibles secondary space on Thursday as the second largest offering of the month made its aftermarket debut.

ZTO Express priced $870 million of five-year convertible notes after the market close on Wednesday.

The new paper from the Shanghai-based delivery service hit the secondary space on a strong day for equities as markets expressed optimism ahead of Federal Reserve chair Jerome Powell’s Friday speech at the Jackson Hole Symposium.

Wednesday also marked a particularly strong session for the ADR space following a Wall Street Journal report the United States and China were nearing an agreement on audits that would prevent more than 200 China-based companies from delisting.

The Dow Jones industrial average closed Thursday up 323 points, or 0.98%, the S&P 500 index closed up 1.41%, the Nasdaq Composite index closed up 1.67% and the Russell 2000 index closed up 1.44%.

While ZTO’s new convertible notes were making gains on an outright basis alongside the company’s equity, they were flat dollar-neutral, sources said.

Outside of ZTO, the secondary space was relatively quiet with few names seeing concentrated trading activity.

There was $533 million in reported volume about one hour before the market close with ZTO accounting for one-fifth of the total reported volume in the space.

Topical news and end-of-month repositioning remained the drivers of activity.

Splunk Inc.’s short-duration 0.5% convertible notes due Sept. 15, 2023 sank below par as stock dropped double digits following earnings.

While less active, Splunk’s longer-duration convertible notes were also lower outright.

Hope Bancorp Inc.’s 2% convertible notes due 2038 were on the rise in active trading with the first put date for the notes less than one year away.

ZTO dominates

ZTO priced $870 million of five-year convertible notes after the market close on Wednesday at par at the cheap end of talk with a coupon of 1.5% and an initial conversion premium of 30%.

Price talk was for a coupon of 1% to 1.5% and an initial conversion premium of 30% to 35%.

The new paper hit the secondary space on a strong day for equities, in particular the equity of China-based companies.

While ZTO’s new convertible notes were making gains on an outright basis alongside the company’s equity, they were flat dollar-neutral, sources said.

The 1.5% notes were changing hands at 102.25 versus a stock price of $24.92 early in the session.

They traded at 102.125 versus a stock price of $25.26 in the late afternoon, according to a market source.

There was $107 million in reported volume.

ZTO’s American Depositary Shares traded to a high of $25.32 and a low of $24.73 before closing at $25.24, up 3.78% on the day.

Splunk’s earnings

Splunk’s short-duration 0.5% convertible notes due Sept. 15, 2023 were active with the notes down outright as stock fell double digits following earnings.

The 0.5% convertible notes were off 3 points outright with stock down more than 10%.

They were changing hands at 98.5 versus a stock price of $92.07 in the late afternoon, according to a market source.

There was $16 million in reported volume.

While the software company’s longer-duration notes saw light volume, they were also lower outright.

Splunk’s 1.125% convertible notes due 2025 fell about 4 points outright to 98.25.

The 1.125% convertible notes due 2027 fell 1 point to 86.625.

Splunk’s stock traded to a high of $103.66 and a low of $95.06 before closing the day at $97.12, a decrease of 12%.

Stock sold off despite a large earnings beat with Splunk reporting earnings per share of 9 cents versus analyst expectations for losses per share of 35 cents.

Revenue was $798.75 million versus analyst expectations for revenue of $747.92 million.

Despite strong earnings and guidance that came in above expectations, stock appeared to be selling off after the company reduced its forecast for recurring revenue, Barrons reported.

Hope gains

Hope Bancorp’s 2% convertible notes due 2038 were on the rise in active trading on Thursday.

The notes rose 1.5 points outright with stock up more than 2%.

They were trading at 99 versus a stock price of $15.06 in the late afternoon.

The yield on the notes was just shy of 3.5%.

There was $12 million in reported volume.

Hope’s stock traded to a high of $15.15 and a low of $14.77 before closing the day at $15.10, an increase of 2.10%.

The notes are putable on May 15, 2023.

Mentioned in this article:

Hope Bancorp Inc. Nasdaq: HOPE

Splunk Inc. Nasdaq: SPLK

ZTO Express NYSE: ZTO

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