NextEra in focus, expands on projected dividend cuts; investment-grade issues weaken

By Abigail W. Adams

Portland, Me., Sept. 27 – The convertibles primary market remained dormant on Wednesday with the market poised for a deal-less week as the third quarter draws to a close.

While there is expected to be a lull in activity over the next few weeks with issuers in earnings season blackout, the primary market is expected to see an active fourth quarter, sources say.

While there was no new issuance to spark trading activity, the secondary space was relatively active although sloppy on a volatile day for markets.

Equities launched the day well bid with Treasuries largely flat, but fortunes turned as the session progressed with equity indexes falling into negative territory as heavy selling hit Treasuries.

“People are using the bond market as an excuse to move their bids lower,” a source said of the secondary space mid-session.

However, fortunes again turned with buyers reentering the space and lifting equity indexes into the close.

The Dow Jones industrial average ended Wednesday down 69 points, or 0.20%, the S&P 500 index closed up 0.02%, the Nasdaq Composite index closed up 0.22% and the Russell 2000 index closed up 0.98%.

The 2-year Treasury yield closed Wednesday up 7.7 basis points at 5.15% and the 10-year closed up 7.8 bps at 4.618%.

While the market was weak on Wednesday, no one was running to the woods, the source said.

There was $70 million in reported volume about one hour into the session and $557 million about one hour before the market close.

NextEra Energy Partners LP’s convertible notes were in focus with the notes lower outright but expanding several points dollar-neutral after the green energy company cut its dividend forecast.

While not active, market players were eyeing PROS Holdings, Inc.’s convertible notes as market chatter that the company was exploring a possible sale catapulted the company’s stock double digits.

Investment-grade convertible notes were also active with the notes weaker amid the move in Treasuries.

NextEra expands

NextEra’s convertible notes were lower outright but expanded several points dollar-neutral as stock crashed after the company cut its dividend forecasts.

The 0% convertible notes due 2025 fell 3 points outright to an 85-handle.

They were changing hands at 85.5 versus a stock price of $38.31 early in the session, according to a market source.

The notes were trading at 85.75 in the late afternoon.

NextEra’s 2.5% convertible notes due 2026 sank 1.5 points outright.

The notes were wrapped around 86.875 throughout the session.

Both tranches made large gains on hedge.

“They announced they’re reducing their dividend,” a source said. “That’s good for the arbitrageurs. It’s working out for them.”

NextEra’s stock traded to a low of $37.17 and a high of $43 before closing at $37.46, a decrease of 20.13%.

The renewable energy company slashed its growth expectations for dividends to 5% to 8% from 12% on Wednesday, citing tighter monetary police and higher interest rates.

PROS for sale?

While the news did little to spark trading activity, PROS Holdings’ convertible notes were being eyed following market chatter the company was exploring a potential sale.

PROS Holdings’ 1% convertible senior notes due May 15, 2024 were unmoved on the news with the last trade at 96 on Sept. 15 with the yield about 7.35%, according to Trace data.

PROS’ 2.25% convertible notes due 2027 changed hands just shy of 103.5 in limited activity on Wednesday, according to a market source.

PROS’ stock traded to a high of $36.61 and a low of $31.98 before closing at $35.60, an increase of 11.28%.

Stock jumped following market chatter that the company was exploring a potential sale and has been in discussion with private equity firms.

The company swapped $122 million of the 1% convertible notes for an amount of the 2.25% convertible notes due 2027 in privately negotiated transactions on Aug. 23, Prospect News reported.

The revenue management software company initially issued $144 million of the 1% notes in May 2019.

High-grade issues weaken

Investment-grade issues once again dominated the tape on Wednesday with the notes weaker as Treasuries took a hit on Wednesday.

Duke Energy Corp.’s 4.125% convertible notes due 2026 (Baa2/BBB) were the top traded issue in the space.

The notes were changing hands at 97.25 versus a stock price of $89.41 in the late afternoon, according to a market source.

There was $37 million in reported volume.

Duke Energy’s stock traded to a low of $89.26 and a high of $91.41 before closing at $90.09, off 1.13%.

Expedia Inc.’s 0% convertibles due 2026 (Baa3/BBB/BBB-) were also slightly weaker although the notes remained on an 86-handle.

The 0% notes were at 86.625 versus a stock price of $99.82 early in the session and 86.5 versus a stock price of $100.15 shortly before the market close, according to a market source.

The yield was about 6.125%.

Expedia’s stock traded to a low of $99.43 and a high of $101.14 before closing at $100.25, up 0.87%.

Mentioned in this article:

Duke Energy Corp. NYSE: DUK

Expedia Inc. Nasdaq: EXPE

NextEra Energy Partners LP NYSE: NEP

PROS Holdings, Inc. NYSE: PRO

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