China-based convertibles improve; Luckin Coffee gains; Nio skyrockets; Microchip active

By Abigail W. Adams

Portland, Me., Jan. 15 – While it was previously believed the Jan. 13 week would be an active one for the convertibles primary market, no new Rule 144A deals were announced and none are expected before the end of the week, sources said.

While no new paper entered the secondary space, trading volume continued to be abnormally high.

There was $145 million in reported volume about one hour into Wednesday’s session and $640 million heading into the late afternoon.

A combination of factors was driving the heavy volume, sources said. Accounts were putting money to work and there was some shifting of portfolios.

There was also a slew of special situations driving trading volume, such as the J.P. Morgan health care conference, which was moving the biotech space, Tesla Inc.’s stock run, and other market moving macro news, a source said.

After nearly three years of tit for tat barbs and conciliatory rhetoric that caused equities to either soar or swoon, China and the United States signed the phase one trade agreement on Wednesday.

The convertible notes of China-based companies were up across the board, a source said.

Luckin Coffee Inc.’s 0.75% convertible notes due 2025 were again in focus with the notes continuing to make gains on an outright and dollar-neutral basis.

Nio Inc.’s 4.5% convertible notes due 2024 skyrocketed on Wednesday following news the company may be receiving a large cash infusion from another automaker.

Microchip Technology Inc.’s convertible notes again saw heavy trading volume with the semiconductor company’s 1.625% convertible notes due 2027 set to be dropped from the Thomson Reuters Convertible Indices.

Luckin gains continue

Luckin Coffee’s 0.75% convertible notes due 2025 returned to focus on Wednesday with the notes continuing to move higher on an outright and dollar-neutral basis.

The notes were changing hands at 106.625 early in the session with more than $17.4 million in reported volume.

They traded as high as 108 heading into the afternoon and stood poised to close the day just north of 107, sources said.

The notes gained another 0.5 point on a dollar-neutral, or hedged, basis, a market source said.

The Beijing-based coffee shop chain’s ADS spiked as the United States and China signed their trade agreement. However, the shares came in toward the market close and ended the day in the red.

Luckin’s ADS traded as high as $47.18 and as low as $44.73 before closing the day at $45.13, a decrease of 1.46%.

Nio skyrockets

Nio’s 4.5% convertible notes skyrocketed on Wednesday, although it was topical news – not the trade agreement – that was moving the notes.

The Shanghai-based electric car manufacturer’s 4.5% notes rose more than 10 points outright.

The notes traded as high as 65 during Wednesday’s session. However, the majority of trades were in the 58 to 60 context, a source said.

The notes were up 6 points dollar-neutral, the source said.

Nio’s ADS traded as high as $4.48 before closing the day at $4.29, an increase of 14.1%.

Nio skyrocketed on Wednesday after a China-based news source reported that the struggling carmaker would receive an infusion of $1 billion from China automaker GAC Group, which will cover its cash flow needs through 2020.

Nio confirmed that it was exploring financial and strategic opportunities with GAC. However, it stated that a definitive agreement had yet to be reached.

Microchip active

Microchip’s convertible notes continued to see high-volume activity on Wednesday.

The 1.625% convertible notes due 2027 were changing hands around 144.75 with stock off more than 2% on Wednesday.

The bonds saw more than $30 million in reported volume.

While volume was lighter, the 1.625% convertible notes due 2025 also saw some activity and were changing hands at 222.5.

Microchip stock traded to a high of $109.40 and a low of $106.92 before closing the day at $107.58, a decrease of 2.31%.

The heavy volume in Microchip’s 2027 notes was due to them coming out of the Thomson Reuters Convertibles Indices, a market source said.

The notes were set to be dropped from the index on Wednesday.

Mentioned in this article:

Luckin Coffee Inc. Nasdaq: LK

Microchip Technology Inc. Nasdaq: MCHP

Nio Inc. NYSE: NIO

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