Nutanix, Palo Alto Networks convertibles active post-earnings; Intel notes head lower

By Abigail W. Adams

Portland, Me., Nov. 26 – The convertible secondary space was active on Tuesday with more than $123 million in reported volume about one hour after the opening bell and $475 million on the tape by late afternoon.

However, with markets closed on Thursday for the Thanksgiving holiday, volume is expected to be light for the remainder of the week.

Many were taking care of end-of-the-month business on Tuesday, which was helping drive activity in the space, a market source said.

However, Intel Corp.’s 3.25% convertible notes due 2039 were the focus of trading activity on Tuesday with the notes contracting in high volume activity after the company called the notes.

Earnings related news was also a major impetus for trading volume.

Palo Alto Networks Inc.’s 0.75% convertible notes due 2023 sank outright and were largely flat dollar-neutral as stock sold off following disappointing forward guidance.

Nutanix Inc.’s 0% convertible notes due 2023 broke par for the first time since last May as stock soared following an earnings beat.

Intel’s call

Intel’s 3.25% convertible notes due 2039 were the most actively traded issue in the secondary space on Tuesday.

The notes were contracting following news the company would call the remaining outstanding amount of the notes.

The $2 billion issue has largely been converted out with only $372 million remaining outstanding.

However, holders will lose out on the accrued interest when converting their notes in the redemption, a market source said.

The 3.25% notes were changing hands between 289.625 and 290 on Tuesday with more than $35 million in reported volume.

They were contracted about 0.25 point on a dollar-neutral basis early in the session, a source said.

Intel stock closed Tuesday at $58.90, an increase of 0.15%.

There are few options for the notes now that they have been called, another source said.

They will be redeemed on Jan. 9 at par plus accrued interest but may be converted any time before the close of business on Jan. 6 with conversion being settled in cash, according to a company press release.

While holders will receive a cash payment equal to the sum of Intel stock over the observation period, there will be no separate cash payment for accrued interest.

The notes, which were issued in 2009, carry a hefty coupon for a convertible note, another source said.

The high coupon on the convertible note of an investment-grade company was a product of a bygone era.

The call of the 3.25% notes retires Intel’s convertible debt.

The semiconductor company’s 2.95% convertible notes due 2035 were redeemed in December 2017.

If Intel decides to retap the convertibles space to raise capital, it will most likely be able to drive tight pricing on a new offering, a market source said.

Palo Alto down outright

Palo Alto’s 0.75% convertible notes due 2023 were among the volume leaders during Tuesday’s session with the notes dropping outright as stock sank following their earnings report.

The notes dropped about 8 points outright to 108.5 with stock down more than 11%.

While down outright, the 0.75% convertible notes were largely unchanged dollar-neutral.

“They really haven’t opened up at all,” a source said.

More than $20 million of the bonds were on the tape by the late afternoon.

Palo Alto stock traded as high as $228.41 and as low as $219.31 before closing the day at $220.37, a decrease of 11.95%.

While Palo Alto beat expectations on both the top and bottom lines in its first-quarter earnings report, guidance fell short of estimates due to another announced acquisition.

Palo Alto reported earnings per share of $1.05 versus analyst expectations for earnings of $1.03.

Revenue was $771.9 million versus analyst expectations for revenue of $768 million.

While Palo Alto reported an earnings beat, stock was selling off on weak forward guidance.

The software security company announced that it was acquiring Aporeto Inc., a machine identity technology, to help its cloud-based cyber security efforts concurrently with its earnings report.

The $150 million transaction is expected to close in the second-quarter, according to a company news release.

The acquisition weighed on Palo Alto’s forward guidance with the company predicting earnings of $1.11 to $1.13 per share for the second-quarter versus analyst expectations for earnings of $1.30.

Nutanix above par

Nutanix’s 0% convertible notes due 2023 jumped above par for the first time since May following a better-than-expected earnings report.

The notes traded just shy of 103 shortly after the opening bell but came in as the session progressed.

They were seen changing hands around 101.75 in the late afternoon.

The notes expanded about 0.5 point dollar-neutral during Tuesday’s session.

Nutanix stock traded as high as $35.00 early in the session but came in to close the day at $33.47, an increase of 16.42%.

Nutanix reported a loss per share of 71 cents in its first-quarter earnings report, narrower than analysts’ expectations for a loss per share of 75 cents.

Revenue was $314.8 million versus analyst expectations for $306.4 million.

The cloud computing software company’s 0% convertible notes due 2023 have languished below par with stock trending lower since its third-quarter earnings report last May.

However, analysts were optimistic following the first-quarter earnings that a turnaround at the company was at hand, MarketWatch reported.

Mentioned in this article:

Intel Corp. Nasdaq: INTC

Nutanix Inc. Nasdaq: NTNX

Palo Alto Networks Inc. NYSE: PANW

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