Splunk convertibles remain in focus, level off in secondary; Ford, DigitalOcean active

By Abigail W. Adams

Portland, Me., Sept. 22 – It was a relatively quiet and flat day in the convertibles secondary space on a volatile day for equities albeit with the exception of one name – Splunk Inc.

Splunk’s convertible notes continued to drive trading volumes following news of Cisco Systems Inc.’s planned acquisition of the company.

However, the notes leveled off with market players assessing the risks involved in the closing of the merger.

Equities launched Friday strong but closed the day in the red as the Fed’s higher-for-longer narrative continued to rattle markets.

The Dow Jones industrial average closed Friday down 107 points, or 0.31%, the S&P 500 index closed down 0.23%, the Nasdaq Composite index closed down 0.09% and the Russell 2000 index closed down 0.30%.

There was $77 million in reported convertibles trading volume about one hour into the session and $314 million in reported volume in the late afternoon.

Ford Motor Co.’s 0% convertible notes due 2026 (Ba2/BB+) improved in heavy volume on a strong day for stock.

DigitalOcean Inc.’s 0% convertible notes due 2026 were also among the top traded issues of Friday’s session although with little movement in price.

Splunk levels off

Splunk’s convertible notes continued to dominate activity in the secondary space on Friday following news of Cisco Systems Inc.’s planned acquisition of the company.

However, the convertible notes leveled off in the heavy volume.

The 1.125% convertible notes due 2027 continued to trade on a 93-handle.

The notes were marked at 93.75 versus a stock price of $144.88 early in the session, according to a market source. They continued to trade at 93.75 in the late afternoon.

There was $31 million in reported volume.

Splunk’s 1.125% convertible notes due 2025 were trading just shy of 107 versus a stock price of $144.87, a source said. The notes inched up to 107.125 in the late afternoon.

There was $23 million in reported volume.

Splunk’s stock traded to a low of $144.26 and a high of $145.47 before closing at $145.07, up 0.44%.

Splunk has been in focus since Cisco announced its acquisition of the company for $157 per share in an all-cash transaction with an equity valuation of $28 billion.

The notes will be taken out in the acquisition.

While hedge players of the 2025 notes stand to lose in the acquisition, hedge players of the 2027 notes will gain.

However, the deal is not expected to close for nine months to a year with the risk of the deal falling through factoring into the trading level of the notes, a source said.

Market players also have to assess the carry costs of holding their positions, the source said.

Ford improves

Ford’s 0% convertible notes due 2026 improved in heavy volume on a strong day for the company’s stock.

The 0% convertible notes gained 1.25 points outright with stock up about 2%.

The notes were wrapped around 99 heading into the market close, according to a market source.

There was $13 million in reported volume.

Ford’s stock traded to a low of $12.42 and a high of $12.76 before closing at $12.43, an increase of 1.89%.

While all eyes are on the UAW strike, it has done little damage to Ford’s capital structure with stock down less than 1% on the week and up almost 4% on the month.

DigitalOcean active

DigitalOcean’s 0% convertible notes due 2026 saw heavy volume on Friday although with little movement in price.

The 0% convertible notes continued to trade on a 76-handle.

The high-premium notes were trading at 76.625 with the yield about 8.5% in the late afternoon, a source said.

There was $12 million in reported volume.

DigitalOcean’s stock traded to a low of $23.83 and a high of $24.65 before closing at $24.22, up 1.09%.

Mentioned in this article:

DigitalOcean Inc. NYSE: DOCN

Ford Motor Co. NYSE: F

Splunk Inc. Nasdaq: SPLK

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