Convertible traders focus on high-liquidity names as initial earnings are announced

Chicago, July 20 – The convertible bond secondary market was active on Thursday with over $675 million on the tape.

The stock markets were mixed, with the S&P 500 index, the Nasdaq-100 index and the Russell 2000 index marginally down but the Dow Jones industrial average closing slightly higher.

The markets are now responding to earnings, with Netflix Inc. and Tesla Inc. having already reported and dragging indices lower, but the Dow helped by names like Johnson & Johnson.

Waiting for a more firm direction, the top five most active names on the convertible tape on Thursday were investment-grade rated bonds.

IG utilities

Investment-grade utility names generally were the volume leaders in the Thursday convertible sector.

Price moves on the most frequently traded bonds were generally modest.

American Water Works Co., Inc.’s 3.625% convertibles due June 15, 2026 (Baa1/A) were the most liquid during the day, accounting for approximately $25 million of the action.

The bonds went out less than 1 point better on the day for all of the activity, with the largest daily trade reported near the close marking the price at 101.94 bid.

Ventas active

The most active non-utility name was Ventas Inc.

Specific focus was on the company’s relatively new (priced in June) issue of 3.75% exchangeable senior notes due June 1, 2026.

One of the last trading prices, at 103.93 bid, on the notes was reported by a source to be slightly less than 1 point better with over $17 million on the tape. Another source showed them at 104.23 bid, which put them more than 1 point better than where they closed a day prior.

The health care real estate investment trust’s stock is on a two-day upswing, closing Thursday at $49.69.

Its sector was mixed in the Thursday equity session. Welltower Inc., for instance, was also up, but Medical Properties Trust was modestly lower.

HubSpot

The most dramatic move of the actively traded bonds on Thursday, on less than $10 million of volume, was the trading price on HubSpot Inc.’s 0.375% convertible bonds due June 1, 2025.

The company’s convertibles lost a formidable 10-plus points during the session to post a 193.26 price at the end of the day.

The company’s stock was off 3.6% on the day, to close at $540.10.

News was hopeful on Thursday. Goldman Sachs, UBS and Oppenheimer each raised their price targets for the Cambridge, Mass.-based software company’s stock. Goldman Sachs now is targeting $596 per share from $536 per share, UBS moved its target to $570 from $460 and Oppenheimer now foresees $620 instead of $490.

However, the company’s stock and bonds were declining out of the gate early in the day possibly due to founder Brian Halligan’s sale of more than half a million dollars worth of stock at $556.69 per share on Tuesday, filed and reported on a form 4 with the Securities and Exchange Commission after the market closed on Wednesday.

For the convertibles, the 10-point decline is a minor setback in a generally positive stretch on prices, a rally that started at the beginning of the year.

The convertibles were issued in 2020 against a stock price of $213.22 and an initial conversion premium of 32.5%. They recently became callable on June 5, subject to a 130% hurdle.

For the equity part, the company’s stock is up a massive 86.31% year to date.

Mentioned in this article:

American Water Works Co., Inc. NYSE: AWK

Ventas Inc. NYSE: VTR

HubSpot Inc. NYSE: HUBS

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.