Convertibles secondary tone improves; IAC gains; China-based convertibles struggle

By Abigail W. Adams

Portland, Me., March 24 – The tone was dramatically improved in the convertibles secondary space on Tuesday as equities surged on optimism surrounding an economic stimulus package from Congress.

The Dow Jones industrial average closed the day up 11.37%, the S&P 500 index closed up 9.38% and the Nasdaq composite closed up 8.12%.

Credit markets were also posting gains with the high-yield space seeing a minor reprieve after spreads pushed the cash bond market into distressed territory in the previous session.

While volume was light in the convertibles secondary space early in the session, trading activity picked up in the afternoon with more buyers making an appearance, a source said.

There was $38 million in reported volume about one hour into Tuesday’s session and $514 million in reported volume in the mid-afternoon.

While there were more bids in the space, sellers were unwilling to go as low as they have in previous sessions, a market source said.

“There’s kind of a standoff,” a market source said.

However, with convertible notes beginning to trade for their yields, the convertibles space was beginning to attract cross-over investors.

IAC/InterActive Corp.’s 0.875% convertible notes due 2022 were active with the notes making gains on an outright and dollar-neutral basis.

However, several convertible notes from China-based companies were not recovering as much as would be expected, a source said.

While Qudian Inc.’s 1% convertible notes due 2026 were trading off their lows from the previous week, they were still in distressed territory.

Momo Inc.’s 1.25% convertible notes due 2025 saw minor outright improvement.

Weibo Corp.’s 1.25% convertible notes due 2022 were still trading well below their theoretical bond floor, a source said.

IAC gains

IAC’s 0.875% convertible notes due 2022 were active and making gains on an outright and dollar-neutral basis as stock skyrocketed on Tuesday.

The 0.875% notes traded up 7 points outright to 110 in the late afternoon.

They were improved 1 point to 1.5 points dollar-neutral, a market source said.

IAC stock traded to a low of $138.58 and a high of $160.88 before closing the day at $159.51, an increase of 20.85%.

Qudian trades off lows

While active early in the session, activity surrounding Qudian’s 1% senior notes due 2026 petered out in the afternoon.

However, the Chinese online small consumer credit provider’s 1% notes were trading off their lows during Tuesday’s session.

While improved, the notes remained in distressed territory.

The 1% notes were changing hands at 52.5 early in Tuesday’s session with about $4 million in reported volume, according to a market source.

The yield on the notes was 12%.

The notes traded as low as 40 in the previous week following the company’s fourth-quarter earnings report and the resignation of the company’s chief financial officer.

Qudian reported mixed fourth-quarter earnings on March 18.

Earnings per share of 8 cents missed analyst expectations of earnings per share of 10 cents.

However, revenue of $277.5 million beat analyst expectations for revenue of $289.88 million.

The company said it expects a material loss in the first quarter.

China-based convertibles

The convertible notes of several China-based companies saw minor improvement on Tuesday.

However, some sources were surprised they did not gain more.

Momo’s 1.25% convertible notes due 2025 were up about 3 points outright.

They were marked at 74 in the late afternoon. The yield was about 7.25%, a source said.

The Beijing-based social networking platform’s stock traded to a low of $22.15 and a high of $24.20 before closing the day at $22.61, an increase of 2.77%.

Weibo’s 1.25% convertible notes due 2022 continued to trade well below their theoretical bond floor, a market source said.

The 1.25% convertible notes continued to trade around 82.25 during Tuesday’s session.

The theoretical bond floor is in the high 80s, a source said.

The Beijing-based social networking company’s stock traded to a low of $34.68 and a high of $36.22 before closing the day at $35.44, an increase of 3.99%.

Mentioned in this article:

IAC/InterActive Corp. Nasdaq: IAC

Momo Inc. Nasdaq: MOMO

Qudian Inc. NYSE: QD

Weibo Corp. Nasdaq: WB

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