Convertible secondary weak with equity markets volatile; Western Digital, Micron active

By Abigail W. Adams

Portland, Me., Dec. 10 – The convertible primary market was quiet and the secondary space weak on Monday as the rollercoaster in equities continued with the Dow Jones industrial average seesawing between gains and losses.

The Dow was down more than 500 points in intraday trading but clawed back into positive territory and gained 100 points toward the market close. However, the index gave back the majority of its gains to close the day up 34 points.

The volatility has taken its toll on primary market activity.

While there was a pipeline of deals for business heading into the final weeks of 2018, many potential issuers have opted to wait for the New Year on the hope volatility will subside, a market source said.

Meanwhile, the secondary space remained under pressure with holders selling into bids, a market source said.

Trading activity was light and broadly dispersed with few names seeing concentrated activity.

Western Digital Corp.’s 1.5% convertible notes due 2024 were once again among the most active issues in the secondary while the notes saw little price movement.

Micron Technology Inc.’s 3% convertible notes due 2043 were also among the volume leaders of the session.

Tesla Inc.’s convertible bonds remained in focus with stock volatile throughout Monday’s session.

However, stock again closed well above the conversion price of the 0.25% convertible notes due March 1, 2019.

While volume was light, iQIYI Inc.’s recently priced 3.75% convertible bonds due 2023 weakened on an outright basis and, at one point, dropped below par.

Volume movers

Western Digital’s 1.5% convertible notes due 2024 were again major volume movers in the secondary space although with little price movement.

The notes saw more than $6.5 million in trading volume over three transactions. They continued to trade around 83, a market source said.

Western Digital stock was off slightly on Monday. Stock traded to a low of $40.74 before closing the day at $41.66, a decrease of 0.88%.

The 1.5% convertible notes were once hard to find with little trading of the notes despite the $1.2 billion size of the issuance.

However, the notes have been major volume movers in the space throughout November with several sellers.

Western Digital stock has lost more than 50% in value since the convertible notes priced. Stock was $87.08 in January.

Micron Technology’s 3% convertible notes due 2043 were also among the volume leaders of Monday’s session with about $10 million on the tape.

The 3% convertible notes trade on nearly a 100% delta, a market source said.

They were seen around 121.625 with stock up slightly early in the session, a market source said.

However, the notes dropped down to 120.25 in the late afternoon, according to Trace data.

Micron stock briefly traded to a high of $35.72 but closed the day at $34.80, a decrease of 1.44%.

Tesla in focus

Tesla’s convertible bonds remained in focus with stock volatile throughout Monday’s session. While volatile, stock again closed above the conversion price of its 0.25% convertible notes due March 1, 2019.

The 0.25% convertible notes continued to see active trading and were down slightly on an outright basis.

The 0.25% notes traded down to 107.5 with the last trade at 108.3, according to Trace data.

While less active, the 1.25% convertible notes due 2021 traded down about 0.75 point outright to 116.75.

However, the notes were improved about 0.25 point dollar-neutral, a source said.

Tesla’s stock will have a close eye on it as the 0.25% convertible notes approach their maturity.

While stock again closed above the $359.87 conversion price on the 0.25% notes, it trended lower in the early afternoon.

Stock traded to a low of $353.00 before closing the day at $365.15, an increase of 2.01%.

Stock closed out last week at $357.965 after closing Thursday at $363.06.

Last Thursday’s closing price was the first time Tesla stock has closed above the conversion price on the 0.25% notes since CEO Elon Musk’s infamous take private tweet on Aug. 7.

Tesla announced the $920 million amount outstanding of the 0.25% convertible notes would be settled half in cash and half in stock if they are convertible upon maturity.

IQ weakens

iQIYI’s recently priced convertible notes weakened on an outright basis on Monday with stock off as fear of an increased escalation in U.S.-China trade tensions rattled markets.

iQIYI’s 3.75% convertible notes were seen below par in the mid-afternoon although they closed the day around 100.5.

While down about 1 point outright, the notes were holding dollar-neutral, a market source said.

The Beijing-based entertainment company’s American Depositary Shares closed Monday at $18.01, a decrease of 2.75%.

Mentioned in this article:

iQIYI Inc. Nasdaq: IQ

Micron Technology Inc. Nasdaq: MU

Tesla Inc. Nasdaq: TSLA

Western Digital Corp. Nasdaq: WDC

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