Duke, CMS, Welltower hit new lows; Sarepta, PTC Therapeutics down outright, up on swap

By Abigail W. Adams

Portland, Me., May 24 – Convertible issuers remained at bay on Wednesday with the primary market again dormant amid continued gridlock in U.S. debt ceiling negotiations.

Hopes for new deal activity before the week draws to a close were diminishing alongside the market’s optimism about an agreement with the primary market believed to be closed until the debt-ceiling debacle is resolved.

Selling accelerated in equities with the Dow Jones industrial average closing Wednesday down 256 points, or 0.77%, the S&P 500 index closing down 0.73%, the Nasdaq Composite index closing down 0.61% and the Russell 2000 index closing down 1.16%.

While no new paper has entered the space since May 17, there was an uptick of trading activity on Wednesday with $120 million in reported convertible bond trading volume about one hour into the session and $500 million on the tape about one hour before the market close.

While the general secondary space was soft on Wednesday, there were few signs of panic.

“No one’s running to the hills,” a source said.

Investment-grade issues continued to lose strength as markets eyed the growing potential for a government default.

Duke Energy Corp.’s 4.125% convertible notes due 2026 (Baa2/BBB), CMS Energy Corp.’s 3.375% convertible notes due 2028 (Baa2) and Welltower Inc.’s 2.75% convertible notes due 2028 (Baa1/BBB+) all hit new outright lows in intraday activity.

Sarepta Therapeutics Inc.’s 1.25% convertible notes due 2027 returned to focus with its notes falling outright but expanding dollar-neutral after the U.S. Food and Drug Administration delayed approval of Sarepta’s gene therapy.

PTC Therapeutics Inc.’s 1.5% convertibles due 2026, an off-the-run issue that rarely trades in volume, were active on Wednesday with the notes down outright but making large dollar-neutral gains after the company announced a failed clinical trial and the discontinuation of its gene therapy programs.

New lows

Investment-grade convertible notes continued their downtrend on Wednesday with Duke Energy’s 4.125% convertible notes due 2026, CMS Energy’s 3.375% convertible notes due 2028 and Welltower’s 2.75% convertible notes due 2028 hitting new outright lows in intraday activity.

Duke Energy’s 4.125% convertible notes due 2026 were changing hands at 99.5 early Wednesday and fell to 99.25 in the late afternoon, according to a market source.

It marked the lowest outright level for the notes since the $1.73 billion issue priced at par in early April.

There was $34 million in reported volume.

Duke Energy’s stock traded to a low of $90.03 and a high of $91.38 before closing at $90.16, off 0.58%.

The 4.125% convertible notes have largely traded in the 101 to 102 context since hitting the secondary space.

However, they have been on a downtrend since last week with the notes falling below par for the first time since pricing during Tuesday’s session.

CMS Energy’s 3.375% convertible notes due 2028 also fell below par with the notes trading around 99.75.

There was $19 million in reported volume.

CMS’ stock traded to a low of $58.01 and a high of $58.80 before closing at $58.06, a decrease of 0.97%.

CMS’ 3.375% notes were trading north of 102 until last week when investment-grade names started to weaken.

The notes were driven below par in late-session trading on Tuesday, marking their lowest level since the $800 million issue priced at par on May 1.

Welltower’s 2.75% convertible notes due 2028 sank to a 98-handle on Wednesday.

The 2.75% notes were down 1 point outright to trade at 98.675 in the late afternoon.

There was $13 million in reported volume.

Welltower’s stock traded to a low of $74.12 and a high of $76.39 before closing at $74.23, a decrease of 2.55%.

The 2.75% convertible notes set a new outright low the previous session as well with the notes closing below par for the first time since the $1.04 billion issue priced at par on May 8.

Sarepta down outright

Sarepta’s 1.25% convertible notes due 2027 returned to focus on Wednesday with the notes down outright, but up on swap after the FDA delayed approval of its gene therapy treatment for Duchenne muscular dystrophy.

The 1.25% notes fell 8 points outright with stock down more than 10%.

The convertibles were changing hands at 118.125 in the late afternoon.

The notes expanded 0.75 point dollar-neutral, a source said.

There was $12 million in reported volume.

Sarepta’s stock traded to a low of $128.45 and a high of $139.16 before closing at $131.36, a decrease of 10.58%.

Sarepta’s convertible notes have been volatile surrounding the FDA approval process for its gene therapy treatment for muscular dystrophy.

The notes made large outright and dollar-neutral gains last week after winning support from an FDA advisory committee.

However, Sarepta announced on Wednesday the FDA had delayed its decision on the treatment until June 22 from the previously scheduled date of May 29.

PTC up on swap

PTC’s 1.5% convertibles due 2026 were among the largest movers of Wednesday’s session with the notes tanking outright but gaining on hedge after the biotech unleashed a barrage of negative news.

The 1.5% notes sank 12 points outright with stock off almost 20%.

The notes traded down to 110 in the late afternoon.

They expanded about 1.5 points dollar-neutral on the move down.

PTC’s stock traded to a low of $42.23 and a high of $48.63 before closing at $46.95, a decrease of 19.62%.

Stock sank after the company announced that one of its clinical trials had missed its endpoint goals and that it was discontinuing its gene therapy programs as part of a reprioritization of its portfolio.

Mentioned in this article:

CMS Energy Corp. NYSE: CMS

Duke Energy Corp. NYSE: DUK

PTC Therapeutics Inc. Nasdaq: PTCT

Sarepta Therapeutics Inc. Nasdaq: SRPT

Welltower Inc. NYSE: WELL

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