Twitter convertible notes trade mixed on buyout; American Airlines weaker in secondary

By Abigail W. Adams

Portland, Me., April 25 – It was a quiet start to the week in the convertibles secondary space on Monday on a wild day for equity markets.

Indexes wavered between large gains and losses throughout the session before closing the day in positive territory.

The Dow Jones industrial average closed Monday up 238 points, or 0.70%, the S&P 500 index closed up 0.57%, the Nasdaq Composite index closed up 1.29%, and the Russell 2000 index closed up 0.70%.

“It’s a roller-coaster today,” a source said.

“Crazy market,” another source said.

While equities were volatile, trading activity in the convertibles space remained light even with the large boost in equities into the close.

There was $60 million in reported convertibles trading volume more than one hour into Monday’s session and $344 million on the tape about one hour before the market close.

Twitter Inc.’s convertible notes accounted for the lion’s share of activity in the space.

Twitter’s convertible notes were mixed following the latest development in Tesla Inc. CEO Elon Musk’s surprise takeover bid for the company.

Twitter’s high-premium 0% convertible notes due 2026 made large gains following news Twitter’s board had agreed to Musk’s takeover offer.

However, the more balanced 0.25% convertible notes due 2024 were unchanged to slightly contracted.

Outside of Twitter, there was little notable activity in the secondary space.

American Airlines Group Inc.’s 6.5% convertible notes due 2025 saw some activity with the notes coming in slightly on an outright and dollar-neutral basis.

Twitter’s surprise

Twitter’s convertible notes continued to dominate the tape on Monday in the latest development in Musk’s hostile takeover bid for the company.

Twitter’s convertible notes were mixed following news the board had reached a deal with Musk and would be taken private in a deal valued at $44 billion.

News of the agreement broke mid-session with the majority of trades on Monday made with the assumption the takeover effort would be successful.

While Twitter’s high-premium 0% convertible notes due 2026 were making large gains on the news, the social media company’s more balanced 0.25% convertible notes due 2024 were weaker.

The 0% convertible notes rose 5 points outright.

They were changing hands at 95.5 versus a stock price of $50.63 early in the session and remained wrapped around 95.5 in the late afternoon.

However, they shot up to a 96-handle following news Twitter and Musk had reached a deal.

There was more than $60 million in reported volume.

Twitter’s 0.25% convertible notes due 2024 were unchanged to weaker on Monday, sources said.

The notes were changing hands at 110.125 versus a stock price of $50.63 early in the session.

They continued to trade on a 110-handle in the late afternoon.

Twitter’s stock traded to a low of $50.24 and a high of $52.29 before closing the day at $51.69, an increase of 5.64%.

News broke pre-open that Twitter and Musk were zeroing in on a deal after Musk announced he had lined up $46.5 billion in financing to support his takeover effort the previous week.

News broke mid-session that Musk and Twitter had reached a deal.

The takeout will be a boon to outright holders of the 0% convertible notes who have already benefited from takeover speculation.

The takeover will trigger the change-of-control par put on the notes.

The 0% notes bottomed out in the mid-80s in late March.

“Outright accounts that bought in then have benefited nicely,” a source said.

However, holders playing the 0.25% convertible notes due 2024 on hedge will lose in the takeout, sources said.

American Airlines weaker

American Airlines’ 6.5% convertible notes due 2025 saw some action on Monday.

The 6.5% notes were down about 1 point outright with stock off about 1%.

They were changing hands at 146.5 in the late afternoon.

The notes were moving in line to down about 0.25 point dollar-neutral, sources said.

American’s stock traded to a low of $19.48 and a high of $20.15 before closing the day at $19.98, a decrease of 0.99%.

American’s 6.5% convertible notes made large outright gains last Thursday after the airline bested analyst expectations in its first-quarter earnings report.

The convertible notes traded as high as 151.5 but have steadily come in since.

While the notes made outright gains the previous week, they have been largely unchanged to slightly contracted dollar-neutral since earnings, sources said.

Mentioned in this article:

American Airlines Group Inc. Nasdaq: AAL

Twitter Inc. NYSE: TWTR

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