Convertibles secondary losses mount; Twitter notes weaken; JetBlue, Lucid hit new low

By Abigail W. Adams

Portland, Me., April 26 – Tuesday marked another brutal day for risk assets with losses mounting in the convertibles secondary space as equities plummeted following Monday’s turbulent session.

The Dow Jones industrial average closed Tuesday down 809 points, or 2.38%, the S&P 500 index closed down 2.81%, the Nasdaq Composite index closed down 3.95%, and the Russell 2000 index closed down 3.26%.

Companies with negative earnings were on the chopping block on Tuesday with a risk-off sentiment firmly entrenched in the market.

The high-flying tech companies that populate the convertibles market continued to get pummeled with the outright accounts holding those names “destroyed,” a source said.

The SPDR Bloomberg Convertibles Securities ETF year-to-date returns were negative 13.75% on Tuesday.

There was an uptick of trading activity amid the sell-off on Tuesday with $87 million in reported volume about one hour after the opening bell and $447 million on the tape about one hour before the market close.

While holders who had held on during the turbulence of the previous week were beginning to sell, there were also some opportunistic buyers entering the space, a source said.

Twitter Inc.’s convertible notes continued to dominate trading following Monday’s surprise news that the social media company had agreed to Elon Musk’s buyout offer.

However, the notes were weaker during Tuesday’s session.

Airlines continued to give back their gains after bouncing the previous week with American Airlines Group Inc.’s 6.5% convertible notes due 2025 and JetBlue Airways Corp.’s 0.5% convertible notes due 2026 continuing to come in on an outright and dollar-neutral basis.

JetBlue’s 0.5% convertible notes hit a new outright low following a disappointing earnings report.

Lucid Group Inc.’s 1.25% convertible notes due 2026 also hit a new outright low in active trading.

Twitter comes in

Twitter’s convertible notes continued to dominate the tape on Tuesday with the notes weaker on a brutal day for risk assets.

Twitter’s 0% convertible notes due 2026 were down about 0.5 point outright.

They were changing hands at 96.125 versus a stock price of $50.92 early in the session.

They continued to trend lower as the sell-off in equities intensified and were changing hands at 95.875 versus a stock price of $50.20 in the late afternoon.

There was $27 million in reported volume.

Twitter’s 0.25% convertible notes due 2024 were down about 2 points outright.

The notes were trading at 109.25 versus a stock price of $50.85 early in the session and at 108.875 versus a stock price of $49.71 in the late afternoon.

There was $19 million in reported volume.

Twitter’s stock traded to a high of $51.62 and a low of $49.43 before closing the day at $49.67, a decrease of 3.93%.

Twitter’s convertible notes were mixed following Monday’s surprise news that the social media company had agreed to Tesla Inc. CEO Elon Musk’s takeover bid, which values the company at $44 billion.

The 0% convertible notes have made large gains since takeover speculation began.

The buyout would trigger a par put on the notes.

However, the 0.25% convertible notes stand to lose in the takeout, especially for hedge players, sources said.

Airlines lower

Airlines continued to come in on an outright and dollar-neutral basis on Tuesday after bouncing the previous week.

American Airlines’ 6.5% convertible notes due 2025 fell 5.5 points outright with stock off 6%. The notes were changing hands at 140.75 in the late afternoon.

The notes contracted about 1 point dollar-neutral, a source said.

American Airlines’ stock traded to a high of $19.98 and a low of $18.76 before closing the day at $18.77, a decrease of 6.06%.

JetBlue’s 0.5% convertible notes due 2026 fell 4 points outright with stock off 11% following earnings.

The notes traded down to 83.5 in the late afternoon, which marked a new outright low for the notes.

They contracted 1 point dollar-neutral on the move down.

JetBlue’s stock traded to a high of $12.54 and a low of $11.55 before closing the day at $11.57, a decrease of 11.41%.

JetBlue’s stock tanked following its first-quarter earnings report and downbeat guidance with the company projecting a longer timeframe to return to profitability than American Airlines.

JetBlue reported losses per share of 80 cents, which beat analyst expectations for losses of 85 cents. Revenue of $1.74 billion was in line with expectations.

However, a shortage of pilots will delay JetBlue’s return to profitability, the company said.

The projections stood in stark contrast to American, which announced last week it expected to return to profitability in the second quarter.

American’s earnings report last week boosted the industry with American’s and JetBlue’s convertible notes making large gains on an outright and dollar-neutral basis.

However, the convertible notes have given back most of the previous week’s gains.

Lucid’s new low

Lucid’s struggling 1.25% convertible notes due 2026 hit a new outright low on Tuesday.

The 1.25% notes fell 2 points outright with stock off almost 9%.

The notes fell to a 69-handle on Tuesday and were changing hands at 69.125 heading into the market close.

There was $12 million in reported volume.

Lucid’s stock traded to a high of $19.34 and a low of $17.61 before closing the day at $17.64, a decrease of 8.74%.

Mentioned in this article:

American Airlines Group Inc. Nasdaq: AAL

JetBlue Airways Corp. Nasdaq: JBLU

Lucid Group Inc. Nasdaq: LCID

Twitter Inc. NYSE: TWTR

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