Convertibles trading volume light; Western Digital, Akamai active; Teladoc contracts

By Abigail W. Adams

Portland, Me., Nov. 5 – The convertibles secondary space opened the week with light trading volume with the primary and secondary market expected to remain quiet until after the U.S. mid-term elections, sources said.

There were several “one off” trades but few names saw concentrated trading activity, a market source said.

However, tech names remained active in the secondary space as equities continued to get hammered on Monday, despite improvement in the overall market.

Western Digital Corp.’s 1.5% convertible notes due 2024 were volume leaders on Monday although the notes were largely unchanged in the high-volume activity.

Akamai Technologies Inc.’s convertible notes were also in focus although the notes were largely trading sideways, a market source said.

Microchip Technology Inc.’s 1.625% convertible notes due 2025 were among the most active issues early in Monday’s session, although trading of the notes tempered into the afternoon.

While Microchip’s convertible bonds benefitted on a dollar-neutral basis when volatility hit the stock in late August, they have moved in lock-step with equity in recent weeks, a market source said.

Teladoc Health Inc.’s convertible notes were contracting dollar-neutral as the stock dropped more than 12% during Monday’s session.

Western Digital in focus

Western Digital’s 1.5% convertible notes due 2024 saw high-volume activity on Monday, although the notes were unchanged on a dollar-neutral basis, sources said.

The notes were trading just shy of 85.375. While stock traded as low as $46.96 during Monday’s session, it rallied to close the day at $48.36, an increase of 1.3%.

The notes were moving flat, a market source said.

The notes have largely traded in the 85 range since the stock tanked after the company reported first-quarter earnings on Oct. 25.

Stock dropped more than 18% on the earnings announcement with the notes contracted about 1 point dollar-neutral.

While Western Digital’s earnings per share were in line with analyst expectations, the data storage company missed on revenue and is anticipating slower growth.

Akamai active

Akamai’s 0.125% convertible notes due 2025 and 0% convertible notes due Feb. 15, 2019 were active in the secondary space although the notes were largely trading sideways, sources said.

The 0.125% convertible notes were down about 1.5 points on an outright basis. They were largely wrapped around 96 with the stock down about 4%.

However, the notes saw little change dollar-neutral, a market source said.

Akamai’s 0% convertible notes continued to trade around 99.125.

With the maturity of the notes fast approaching, they do not trade on hedge, a market source said.

Akamai stock closed Monday at $68.95.

Akamai’s 0.125% convertible notes outperformed last week after Akamai reported a third-quarter earnings beat.

The 0.125% notes jumped 4 points outright to a 97 handle and expanded 1 point dollar-neutral as stock shot up almost 17% on Oct. 30.

Microchip unchanged

While active early in the session with $4 million on the tape, activity in Microchip’s 1.625% convertible notes due 2025 was muted in the afternoon.

The 1.625% notes due 2025 were seen trading around 135.75 with stock down about 2% early in the session.

Trading volume was also light in Microchip’s 1.625% convertible notes due 2027.

However, the notes were seen changing hands around 96.625.

After trading to a low of $67.80 during Monday’s session, Microchip stock closed the day at $69.33, a decrease of 0.59%.

Microchip’s 1.625% convertible notes due 2027 traded in the low 90s last week as stock hit a new 52-week low amid a sell-off in equities, which hit the semiconductor and tech sectors hard.

However, the notes rallied outright alongside stock to close last week around 98, according to Trace data.

Microchip’s stock has been volatile since the company released its first-quarter earnings report in August where it disclosed accounting problems at the recently acquired Microsemi, which resulted in lower sales guidance.

While the notes initially benefited from the volatility and were expanding as stock tanked, they have moved in lock-step with their equity in recent weeks, a market source said.

Microchip is expected to release earnings on Wednesday.

Teladoc contracts

Teladoc’s convertible notes were contracting dollar-neutral as stock dropped more than 12% during Monday’s session.

The 1.375% convertible notes due 2025 were down about 13 points outright to trade around 137.5. They were contracted about 1.375 points dollar-neutral, a market source said.

The 1.375% notes, which priced at par in May, have been one of the new deals to outperform in 2018.

While trading volume was light, Teladoc’s 3% convertible notes due 2022 were also seen contracted.

The notes dropped about 18 points outright to trade at 162.25. Sources saw the convertible notes contracted 0.25 point dollar-neutral.

The 3% convertible notes are deep in the money, a market source said. “Names so deep in the money don’t really collapse or expand,” the source said.

The conversion price on the 3% notes is $44.

Teladoc stock closed Monday at $63.34, a decrease of 12.65%. While down on Monday, stock was still up slightly week over week, a source said.

Teladoc stock jumped to close Friday at $72.51 after the company reported a third-quarter earnings beat. However, stock gave up much of its gains on Monday.

Mentioned in this article:

Akamai Technologies Inc. Nasdaq: AKAM

Microchip Technology Inc. Nasdaq: MCHP

Teladoc Health Inc. NYSE: TDOC

Western Digital Corp. Nasdaq: WDC

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