Volatility takes its toll on convertibles space; Square expands; Wayfair, Booking active

By Abigail W. Adams

Portland, Me., Nov. 20 – The sell-off in equities continued to take a toll on the convertibles universe with the secondary space under pressure on Tuesday and primary market activity stifled.

Post Holdings, Inc. became the second prospective issuer to withdraw its offering due to market conditions.

The company was expected to price a $400 million offering of series D cumulative perpetual convertible preferred stock after the market close on Monday.

While the convertible secondary market was holding as volatility roiled equities a few weeks ago with names improving dollar-neutral, that is no longer the case.

Names were seen as either unchanged or down 0.25 to 0.5 point dollar-neutral on Tuesday, a market source said.

The Dow Jones industrial average dropped 560 points less than one hour into Tuesday’s session.

The index rebounded a short time later and was down 355 points late morning.

However, equities again swooned in the late afternoon with the Dow closing the day down 551 points.

Square Inc.’s convertible bonds were active with stock volatile during Tuesday’s session. In contrast to the general market, the 0.5% convertible notes were seen slightly improved dollar-neutral.

Wayfair Inc.’s recently priced 1.125% convertible notes due 2024 were active with stock also volatile although the notes were largely unchanged.

Booking Holdings Inc.’s convertible notes were also major volume movers on Tuesday with accounts liquidating holdings to raise funds.

The withdrawal

Post Holdings terminated its $400 million offering of series D cumulative perpetual convertible preferred stock on Monday, which did not surprise market sources.

Price talk was for a dividend of 4% to 4.5% and an initial conversion premium of 25% to 30%, according to a market source.

The deal was being marketed with assumptions of 475 basis points over Libor and a 24% vol., sources said.

Several sources felt the credit spread was too tight, especially given the blow out in high-yield credit spreads last week.

The coupon was low given the current market climate, a market source said.

The deal had most likely been in discussion for several months prior to launching and pricing did not factor in the dramatic turn the market has taken recently, another source said.

Post Holdings was the second prospective issuer to cancel its offering due to market conditions. Ribbon Communications Inc. withdrew its $150 million offering of five-year convertible notes on Nov. 13.

The sell-off

On Monday, there were 35 to 40 names that saw more than a 5% drop in their equity with 17 of those names seeing more than a 10% drop.

The steep decline in equities on Monday sparked selling in the convertibles secondary space.

For the first hour and a half of Tuesday’s session, everything seemed to be for sale with outright accounts selling into bids, a market source said.

The blow out in high-yield credit spreads has impacted the convertibles universe with the valuations of convertibles from issuers that also have high-yield bonds under extra pressure.

“People are backing their bids up when they notice high-yield debt going lower,” a market source said. “The stuff with reference debt is getting pummeled more.”

Square expands

Square’s convertible notes were major volume movers on Tuesday as stock saw a volatile session.

In contrast to the general market, the mobile financial services company’s 0.5% convertible bonds due 2023 saw a slight expansion dollar-neutral.

The 0.5% notes traded as low as 104.625 shortly after the opening bell but traded up to 109.5 about one hour into the session, a market source said.

The notes were trading just north of 108 in the mid-afternoon.

They were expanded about 0.25 point dollar-neutral, a market source said.

The 0.375% convertible notes due 2022 dropped almost 50 points outright early in the session to trade as low as 254.5 but climbed alongside stock to trade up to 270.

The notes trade around parity, a market source said.

Square stock was down 11% in pre-market trading on Tuesday but pared its losses soon after the opening bell.

Stock traded as low as $55.37 and as high as $63.58 before closing the day at $61.82, a decrease of 1.83%.

Wayfair volatile

Wayfair’s recently priced 1.125% convertible notes due 2024 were active on Tuesday with stock also volatile during the session.

The notes were down outright early in the session and were seen changing hands as low as 96.125, a market source said.

They improved alongside stock and were seen moving on a 98 handle later in the afternoon. However, the notes were largely moving in line dollar-neutral.

Wayfair stock was down as much as 6% shortly after the opening bell but closed the day in the green.

Stock traded as low as $76.60 and as high as $87.99 before closing at $84.55, an increase of 2.36%.

Booking Holdings active

Booking Holdings’ convertible bonds were major volume movers on Tuesday as the secondary space saw selling pressure with accounts liquidating holdings to raise cash.

The 0.35% convertible notes due 2020 were changing hands just shy of 136.875 with more than $8 million of the bonds on the tape, a market source said.

The 0.9% convertible notes due 2021 were largely trading around 110 with more than $7 million on the tape by late afternoon.

Booking Holdings stock closed Tuesday at $1,750.43, a decrease of 1.66%.

Mentioned in this article:

Booking Holdings Inc. Nasdaq: BKNG

Post Holdings, Inc. NYSE: POST

Ribbon Communications Inc. Nasdaq: RBBN

Square Inc. NYSE: SQ

Wayfair Inc. NYSE: W

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