Western Digital convertible notes active; Zscaler jumps outright; Okta paper expands

By Abigail W. Adams

Portland, Me., Dec. 1 – The convertibles primary market remained dormant on Thursday with hopes for a busy week of new issuance dashed.

However, deals are expected in the coming week especially if markets hold, sources said.

While there were no new paper to spark trading activity, the convertibles secondary space was active on Thursday with “significant follow through” after Wednesday’s head-spinning rally, a source said.

While equity markets wobbled between nominal gains and losses, buyers were out in full force in the convertibles market on Thursday, particularly outright accounts that may be underinvested.

Equity indexes closed Thursday mixed with the Dow Jones industrial average closing down 195 points, or 0.56%, the S&P 500 index down 0.09%, the Nasdaq Composite index up 0.13% and the Russell 2000 index down 0.26%.

There was $86 million in reported volume about one hour into the session and $465 million on the tape about one hour before the market close.

Western Digital Corp.’s 1.5% convertible notes due Feb. 1, 2024 (Baa3) continued to see heavy volume as their end-of-life approaches.

Carnival Corp.’s 5.75% convertible notes due 2027 hit a new outright high in early trading although they gave back much of their outright gains by the market close.

While volatile outright, the notes were largely unchanged dollar-neutral.

Zscaler Inc.’s 0.125% convertible notes due 2025 jumped on an outright basis on the eve of the company’s earnings report after a volatile session on Wednesday.

However, Zscaler’s stock dropped double digits in after-hours trading following the release of the report.

Okta Inc.’s convertible notes made large outright and dollar-neutral gains as stock surged following an earnings beat.

Western Digital dominates

Western Digital’s 1.5% convertible notes due Feb. 1, 2024 continued to see heavy volume with their maturity about two months away.

The 1.5% notes were little changed with the notes wrapped around 95.5 and the yield 5½%.

The high-premium convertible notes have long traded for their yield and will be taken out at par upon their maturity, a source said.

There was $21 million in reported volume with the notes active on end-of-life trades, a source said.

Carnival volatile

Carnival’s 5.75% convertible notes due 2027 were volatile on an outright basis with the notes hitting a new outright high early in the session but closing the day largely flat.

The notes climbed another 1.5 points outright to trade north of 102 early in the session.

It was the highest outright level for the notes since the $1 billion issue, which priced at par, hit the aftermarket on Nov. 16.

The 5.75% notes were changing hands at 102 versus a stock price of $10.19 early in the session, according to a market source.

However, the notes came in alongside stock as the session progressed.

They were changing hands at 100.875 versus a stock price of $10.07 in the late afternoon.

While volatile outright, the notes were largely moving in line dollar-neutral.

There was $16 million in reported volume.

Carnival’s stock traded to a low of $9.90 and a high of $10.29 before closing the day at $9.97, an increase of 0.40%.

Carnival’s 5.75% convertible notes have been volatile since breaking for trade with the notes dropping as low as 97 before they were lifted back above par in the pre-Thanksgiving rally.

Zscaler jumps

Zscaler’s 0.125% convertible notes due 2025 surged on Wednesday on the eve of the cybersecurity company’s earnings report and in the wake of a volatile session on Wednesday.

The 0.125% notes were up 7 points outright with stock up almost 5%.

The notes were changing hands at 118 versus a stock price of $141.59 early in the session on Thursday, according to a market source.

They continued to gain alongside stock and were seen at 118.875 heading into the market close.

There was $13 million in reported volume.

Zscaler’s stock traded to a high of $144.87 and a low of $134.51 before closing Thursday at $144.50, an increase of 8.28%.

However, stock plummeted 12% in afterhours trading after Zscaler released earnings.

The 0.125% notes were volatile in active trading on Wednesday with the company’s stock and convertible notes under pressure early in the session but paring their losses by the market close.

Stock was trading down in sympathy with industry peer Crowdstrike Inc., which reported disappointing earnings prior to Wednesday’s open.

Okta’s earnings

Okta’s convertible notes made large gains on an outright and dollar-neutral basis as stock surged post-earnings.

Okta’s 0.375% convertible notes due 2026 rose 2 points outright with stock up more than 24%.

The notes were changing hands at 83.75 versus a stock price of $66.87 in the late afternoon.

The high-premium notes expanded 1 point dollar-neutral on the move up, a source said.

There was $9 million in reported volume.

Okta’s 0.125% convertible notes due 2025 jumped 7 points outright.

The notes were changing hands at 88.75 in the late afternoon.

They also expanded about 1 point dollar-neutral.

Okta’s stock traded to a low of $61.37 and a high of $67.62 before closing at $67.43, an increase of 26.46%.

The user authentication software company’s stock surged after reporting a large earnings beat.

Okta reported break-even earnings per share versus analyst expectations for a losses per share of 24 cents.

Revenue was $481.04 million versus analyst expectations for revenue of $465.37 million.

Mentioned in this article:

Carnival Corp. NYSE: CCL

Okta Inc. Nasdaq: OKTA

Western Digital Corp. Nasdaq: WDC

Zscaler Inc. Nasdaq: ZS

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