NextEra convertibles in focus as stock collapse continues; high-grade names weaker

By Abigail W. Adams

Portland, Me., Oct. 2 – The convertibles primary market was quiet on Monday with sources expecting a lull in activity with issuers in earnings season blackouts.

However, the primary market is expected to see an active fourth quarter with the higher-for-longer rate scenario making the convertibles market an attractive place for a capital raise to meet growing refinancing needs.

Meanwhile, the secondary space saw a slow start to the week with equity markets mixed as Treasury yields resumed their climb.

However, topical news and selling in high-grade names amid the rate move kept the market moving.

The Dow Jones industrial average closed Monday down 74 points, or 0.22%, the S&P 500 index closed up 0.01%, the Nasdaq Composite index closed up 0.67% and the Russell 2000 index closed down 1.58%.

There was $45 million in reported convertibles trading volume about one hour into the session and $328 million on the tape in the late afternoon.

NextEra Energy Partners LP’s convertible notes remained in focus with the notes strong on hedge as the renewable energy company’s stock continued to implode.

High-grade names were also active and weaker across the board as Treasury yields again hit recent highs.

Advanced Energy Industries Inc.’s 2.5% convertible notes due 2028 also saw active trading during Monday’s session although with little movement in price.

NextEra in focus

NextEra Energy’s convertible notes continued to dominate the tape with the notes remaining strong on hedge on another double digit drop for the company’s stock.

NextEra’s 0% convertible notes due 2025 were off 0.75 point outright with stock down another 16%.

The notes were trading at 83.25 versus a stock price of $25.77 in the late afternoon.

The yield was 8.875%.

There was $22 million in reported volume.

The 2.5% convertible notes due 2026 were off 0.5 point outright.

They were trading at 84.875 versus a stock price of $25.65 in the late afternoon.

The yield was also about 8.875%.

There was $15 million in reported volume.

NextEra’s stock traded to a low of $24.25 an da high of $29.37 before closing the day at $24.74, a decrease of 16.70%.

The latest round of selling in NextEra came after Wells Fargo slashed its price target on the company to $33 from $80.

The convertible notes have been in focus since last Wednesday when the renewable energy company slashed its dividend expectations to 5% to 8% from 12%.

While lower outright, the convertibles have made large gains on hedge.

NextEra’s stock has fallen 47% since last Wednesday.

High-grade weaker

High-grade names were weaker across the board on Monday as selling resumed in Treasuries sending yields to recent highs.

Duke Energy Corp.’s 4.125% convertible notes due 2026 (Baa2/BBB) and Welltower Inc.’s 2.75% convertible notes due 2028 (Baa1/BBB+) were among the most actively traded issues in the space.

Duke Energy’s 4.125% convertible notes due 2026 shed 1 point outright with stock down about 2.5%.

The notes were trading at 96.375 versus a stock price of $84.86 in the late afternoon, according to a market source.

The trading level marked the lowest outright price for the notes since the $1.73 billion issue hit the aftermarket in early April.

Duke Energy’s stock traded to a low of $84.14 and a high of $87.99 before closing at $85.44, a decrease of 3.2%.

Welltower’s 2.75% convertible notes due 2028 traded down 0.5 point outright with stock closing largely flat.

The 2.75% notes were changing hands at 101.875 versus a stock price of $81.27 in the late afternoon.

There was $12 million in reported volume.

Welltower’s stock traded to a low of $80.67 and a high of $84.50 before closing at $81.73, off 0.23%.

Advanced Energy active

Advanced Energy’s 2.5% convertible notes due 2028 saw a round of activity on Monday although with little movement in price.

The notes were changing hands at 101.5 versus a stock price of $103.66 early in the session and 101.375 versus a stock price of $103.33 in the late afternoon, sources said.

There was $10 million in reported volume.

Advanced Energy’s stock traded to a low of $102.1 and a high of $104.56 before closing at $102.23, down 0.86%.

Mentioned in this article:

Advanced Energy Industries Inc. Nasdaq: AEIS

Duke Energy Corp. NYSE: DUK

NextEra Energy Partners LP NYSE: NEP

Welltower Inc. NYSE: WELL

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