Alliant Energy, Southern Co., PPL convertibles improve, stay below par; Zscaler active

By Abigail W. Adams

Portland, Me., March 3 – The convertibles secondary space remained active on Friday as the sell-off in Treasuries paused and equities roared back from a rocky week.

Markets continued to rise after dovish comments from a Federal Reserve official alleviated some of the rate concerns weighing on markets.

The Dow Jones industrial average closed Friday up 387 points, or 1.17%, the S&P 500 index closed up 1.61%, the Nasdaq Composite index closed up 1.97% and the Russell 2000 index closed up 1.35%.

There was $90 million in reported convertibles trading volume about one hour into the session and $500 million on the tape about one hour before the market close.

New issuance remained the driving force of activity in the space with the slate of new investment-grade paper continuing to see heavy volume.

Alliant Energy Corp.’s 3.875% convertible notes due 2026 (BBB+), Southern Co.’s 3.875% convertible notes due 2025 (Baa2/BBB) and PPL Capital Funding Inc.’s 2.875% convertible notes due 2028 (Baa1/BBB+) improved alongside the broader market on Friday.

However, the secondary market performance of the notes has been “disappointing,” a source said, with the paper remaining below par.

Outside of recent issues, Zscaler Inc.’s 0.125% convertible notes due 2025 were active as stock sank double digits following earnings.

While down outright, the notes expanded on the move down.

IG improves

The recent spate of investment-grade issuance firmed in heavy volume on Friday as broader markets recovered from a rocky week.

While improved, the performance of the paper has been “disappointing,” a source said.

Alliant’s 3.875% convertible notes due 2026 gained about 0.25 point outright into the close, although they remained on a 99-handle.

The notes were trading in the 99.25 to 99.5 area early in the session and were lifted to 99.75 heading into the close, sources said.

Alliant Energy’s stock traded to a low of $50.95 and a high of $52.10 before closing at $52.07, an increase of 0.93%.

Southern Co.’s 3.875% convertible notes due 2025 gained 0.25 point outright but remained on a 98-handle.

They were changing hands in the 98.5 to 98.625 context heading into the market close.

Southern Co.’s stock traded to a low of $63.20 and a high of $64.88 before closing at $64.81, up 1.79%.

PPL’s 2.875% convertible notes due 2028 climbed 0.5 point outright.

The notes were seen in the 98 to 98.125 context heading into the market close, a source said.

PPL’s stock traded to a low of $26.94 and a high of $27.42 before closing at $27.39 for a 1% gain.

While the investment-grade paper firmed on Friday, their aftermarket performance has disappointed with all issues down outright and contracted dollar-neutral since pricing.

The poor performance has largely been attributed to oversaturation with $2.9 billion of IG rated convertible notes from utility companies hitting the market in such a short time frame.

Zscaler’s earnings

Zscaler’s 0.125% convertible notes due 2025 were active as stock plunged double digits post-earnings.

While the notes were lower on an outright basis, they saw a minor expansion dollar-neutral.

The 0.125% notes were off 6.5 points outright with stock down more than 10%.

The convertibles were trading at 106.5 versus a stock price of $117.59 early in the session, according to a market source.

The notes traded up to 107 as stock pared its losses into the afternoon.

The notes expanded about 0.25 point dollar-neutral, a source said.

Zscaler’s stock traded to a high of $122.47 and a low of $116.60 before closing at $119.24, a decrease of 11.10%.

Stock sank after the cyber-security company reported a large earnings beat and raised its forward guidance.

The company reported earnings per share of 37 cents versus the 29 cents expected on revenue of $387.6 million versus the $367.58 million expected.

However, the earnings release was met with several analyst downgrades and price target cuts after the company logged a growing decline in billings, MarketWatch reported.

Mentioned in this article:

Alliant Energy Corp. Nasdaq: LNT

PPL Capital Funding Inc. NYSE: PPL

Southern Co. NYSE: SO

Zscaler Inc. Nasdaq: ZS

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