Selling pressure hits convertible secondary; high-grade paper active; recent deals tank

By Abigail W. Adams

Portland, Me., March 11 – The carnage in the markets hit the convertibles secondary space in full force on Wednesday with credit spreads blowing out and equities crossing into bear market territory.

“It’s starting to catch up,” a source said. “There’s carnage everywhere.”

The convertibles secondary space held up relatively well over the past few weeks as volatility threw other markets into chaos.

However, the space succumbed to selling pressure on Wednesday with the market down multiple points, a market source said.

There was $653 million in reported volume about one hour before the market close with any names with any liquidity selling.

Ares Capital Corp.’s 4.625% convertible notes due 2024 and Fortive Corp.’s 0.875% convertible notes due 2022 were active with the investment-grade paper continuing to hold, although some questioned for how long.

However, several of the recent deals to price at the onset of the market turmoil were not faring so well.

Square Inc.’s 0.125% convertible notes due 2025, RingCentral Inc.’s 0% convertible notes due 2025, and Live Nation Entertainment Inc.’s 2% convertible notes due 2025 continued to get decimated.

Selling pressure

The carnage in equity and credit markets hit the convertible secondary space in full force on Wednesday with selling pressure dragging down the overall market.

“Anywhere there’s any liquidity, people are trying to make sales,” a market source said.

However, buyers were becoming harder and harder to find.

Names were no longer holding up on hedge with the overall market down 2 to 3 points, a source said.

The tone of the market was beginning to echo that of the global financial crisis in 2008.

“It’s been a rough couple of days,” a source said.

Investment grade

Investment-grade paper was active on Wednesday and was holding up relatively well given the market conditions.

Fortive’s 0.875% convertible notes due 2022 were continuing to trade around 97.875.

While there were only 14 trades on the tape by the late afternoon, the notes had seen $43 million in reported volume, according to a market source.

Fortive stock traded to a high of $61.26 and a low of $58.89 before closing the day at $59.43, a decrease of 4.85%.

Ares Capital’s 4.625% convertible notes due 2024 were changing hands at 103.25 in the late afternoon with about $15 million in reported volume.

Ares Capital stock traded to a high of $16.20 and a low of $15.61 before closing the day at $15.90, a decrease of 3.17%.

Investment grade and short duration paper has been in demand throughout the week as equities whipsaw between substantial gains and losses, sources said.

While the investment-grade paper was holding up relatively well, it was only a matter of time before it came in alongside the overall market, a source said.

Recent deals

Several of the deals to price at the outset of the market turmoil continued to get decimated on Wednesday, sources said.

Square’s recently priced 0.125% convertible notes due 2025 dropped down to 90.75 on Wednesday.

The notes saw high-volume activity on Wednesday with $22 million in reported volume shortly before the market close.

Square’s stock traded to a high of $66.35 and a low of $60.82 before closing the day at $62.44, a decrease of 7.14%.

Square priced a $1 billion offering of the 0.125% notes at par on March 3 when stock was $80.67.

RingCentral’s 0% convertible notes due 2025 were changing hands at 94.125 early in the session and dropped to 90.75 heading into the market close.

RingCentral stock traded to a high of $213.34 and a low of $187.56 before closing the day at $199.34, a decrease of 6.79%.

RingCentral priced a $1 billion offering of the 0% convertible notes at par on Feb. 27 when stock was $240.28.

Live Nation Entertainment’s 2% convertible notes due 2025 traded down to an 88 handle on Wednesday.

Live Nation stock traded to a high of $48.34 and a low of $40.90 before closing the day at $42.01, a decrease of 16.58%.

The notes have traded in the mid to low 90s since late February when volatility began to rear its head on coronavirus concerns.

The entertainment industry has been particularly hard hit by the growing pandemic, sources said.

The events promoter and venue operator’s stock has been taking a hit in recent sessions due to the widespread cancellation of concerts and festivals.

Live Nation priced a $350 million offering of the convertible notes on Jan. 29 at par when stock was $70.57.

Mentioned in this article:

Ares Capital Corp. Nasdaq: ARCC

Fortive Corp. NYSE: FTV

Live Nation Entertainment Inc. NYSE: LYV

RingCentral Inc. NYSE: RNG

Square Inc. NYSE: SQ

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