Western Digital active post-earnings; Southwest Airlines weakens; Copa below par; 2U up

By Abigail W. Adams

Portland, Me., May 1 – The convertibles secondary space rounded out an active week quietly as equities opened the month in the red on dreary earnings forecasts and renewed U.S. tensions with China.

There was $80 million in reported volume about one hour into the session and $450 million about one hour before the market close.

It was the quietest day in the secondary space in weeks, a source said.

While the flurry of trading activity surrounding new deals tempered, Southwest Airlines Co.’s 1.25% convertible notes due 2025 continued to top the volume charts.

The 1.25% notes hit their lowest outright level since pricing and were again weakening on a dollar-neutral, or hedged, basis.

Copa Holdings SA’s 4.5% convertible notes due 2025 continued to struggle with the notes dropping below par.

However, 2U Inc.’s 2.25% convertible notes due 2025 continued to gain on an outright basis as stock popped following first-quarter earnings.

Earnings-related news also pushed some outstanding issues into focus.

Western Digital Corp.’s 1.5% convertible notes due 2024 saw high-volume activity with the notes down outright but unchanged on a dollar-neutral basis following an earnings miss and a suspension of the dividend on the company’s stock.

Southwest weakens

Southwest Airlines’ 1.25% convertible notes due 2025 remained on top of the volume charts on Friday.

However, the notes were coming in on an outright and dollar-neutral basis as stock traded off.

The 1.25% notes traded as low as 105.75 in intraday activity and stood poised to close the session at 106.5.

It was the lowest the notes have traded since they hit the secondary space on Wednesday.

The notes were also coming in slightly on a dollar-neutral basis.

They were seen down about 0.25 point on Friday, a market source said.

While the 1.25% notes have given back some of their gains, they were still up 6 to 7 points dollar-neutral from their pricing.

Southwest Airlines stock was trading off on Friday. Stock traded to a high of $30.96 and a low of $28.75 before closing the day at $29.23, a decrease of 6.46%.

Stock was trading off on Friday after the company announced it was limiting the number of passengers on its flights as part of a wide array of safety measures.

Copa below par

While the majority of deals to price over the past week have outperformed in the secondary space, Copa Holdings’ 4.5% convertible notes due 2025 continued to struggle.

The 4.5% convertible notes dropped below par as stock sold off on Friday.

The notes traded as low as 97.75 early in the session and were changing hands on a 98 handle heading into the market close, sources said.

Copa stock traded to a low of $40.01 and a high of $43.45 before closing the day at $42.60, a decrease of 3.88%.

The 4.5% notes from the Panama City-based holding company for Copa Airlines have struggled since hitting the secondary space on Tuesday.

The notes were one of the only deals from the past week to contract on debut.

2U gains

2U’s recently priced 2.25% convertible notes due 2025 were making gains on an outright basis as stock popped in intraday trading following earnings.

The 2.25% convertible notes traded as high as 105.25 early in the session and were changing hands around 104.5 in the late afternoon.

It was the highest outright level for the notes since they made their secondary market debut on April 21.

The notes were below par their initial days in the aftermarket.

While stock gave back much of its gains heading into the market close, it was up almost 7% at its peak on Friday.

2U stock traded to a high of $25.40 and a low of $23.65 before closing the day at $23.84, an increase of 0.36%.

The educational technology company beat on both the top and bottom line in its first-quarter earnings report.

2U reported losses per share of 33 cents versus analyst expectations for losses per share of 47 cents.

Revenue was $175.5 million versus analyst expectations for revenue of $174.1 million.

Western Digital earnings

Western Digital’s 1.5% convertible notes due 2024 saw high-volume activity on Friday.

While the notes were down outright, they were largely unchanged dollar-neutral, sources said.

The 1.5% notes traded as low as 89.875 early in the session.

However, they were trading around 90.25 heading into the market close.

The notes were unchanged dollar-neutral as stock got crushed on Friday, a market source said.

Western Digital stock traded to a low of $38.42 and a high of $41.44 before closing the day at $40.48, a decrease of 12.15%.

Western Digital stock was selling off following a third-quarter earnings miss and a suspension of its dividend.

The hard disk drive manufacturer and data storage company reported earnings per share of 85 cents versus analyst expectations for earnings of 92 cents.

The company reported revenue of $4.18 billion versus analyst expectations for $4.2 billion.

Western Digital’s stock was yielding 4% prior to the suspension of its dividend.

Typically, convertible notes improve after companies cut or suspend their dividend, a source said.

However, this did not occur with Western Digital.

Mentioned in this article:

2U Inc. Nasdaq: TWOU

Copa Holdings SA NYSE: CPA

Southwest Airlines Co. NYSE: LUV

Western Digital Corp. Nasdaq: WDC

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