Morning Commentary: Block convertibles in focus as stock falls on Hindenburg report

By Abigail W. Adams

Portland, Me., March 23 – It was an active morning in the convertibles secondary space with topical news jumpstarting activity in Block Inc.’s (formerly known as Square Inc.) capital structure.

While equity indexes rebounded from Wednesday’s steep post-Fed sell-off, Square’s stock cratered on a short-seller report from Hindenburg Research.

The Dow Jones industrial average was up 446 points, or 1.39%, the S&P 500 index was up 1.66%, the Nasdaq Composite index was up 2.34% and the Russell 2000 index was up 1.52% shortly before 11 a.m. ET.

There was $110 million in reported volume about one hour into the session with Block’s four tranches of convertible notes accounting for almost one-half of the total volume in the space.

Block’s 0.25% convertible notes due 2027 and 0% convertible notes due 2026 were the most active tranches with both notes offering an attractive yield play, a source said.

The 0.25% convertible notes were down about 2 points outright.

The notes were changing hands at 74.75 versus a stock price of $60.27 early in the session, according to a market source.

The yield was about 6.75%.

There was $19 million in reported volume.

The 0% convertible notes due 2026 were largely unchanged with the notes holding at their bond floor, a source said.

The 0% notes traded at 80.375 with a yield of 7.2% early in the session, a source said.

There was $16 million in reported volume.

Block’s 0.125% convertible notes due 2025, which carry a more balanced profile, were down 4.5 points outright with stock off almost 20% early in the session.

The notes were changing hands at 92.5.

There was $6 million in reported volume.

Block’s soon-to-mature 0.5% convertible notes due May 15, 2023 were changing hands just north of par for a yield-to-maturity of 0.125%.

The notes were a short-duration yield play, a source said.

While Hindenburg Research, the short-seller responsible for the downfall of the Adani Group and Nikola Corp., has taken aim at Block, there is little doubt about the company’s ability to pay off the debt.

“They have $5 billion in cash. They’re cash to debt ratio is fine,” a source said.

The company is most likely eyeing the notes closely and would jump at the opportunity to repurchase them in open market transactions if they fall below par, the source said.

Square’s stock traded as low as $56.50 early in Thursday’s session but pared losses and was changing hands at $65.11, a decrease of 10.38%, shortly before 11 a.m. ET.

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