Royal Caribbean convertibles top par; Redfin drops below par; Western Digital active

By Abigail W. Adams

Portland, Me., Oct. 20 – The convertibles secondary space saw another slow day on Tuesday as equities whipsawed on stimulus negotiation headlines.

While equity benchmarks were well off their intraday highs, they still closed the day in the green.

The Dow Jones industrial average closed Tuesday up 113.37 points, or 0.4%, the S&P 500 up 0.47% and the Nasdaq composite up 0.33%.

Trading volume amid the market volatility was “ridiculous,” with $271 million in reported volume about one hour before the market close, a source said.

With the primary market quieter than anticipated, secondary market activity was slowing down in kind.

However, with several recent deals pricing “extremely rich,” outstanding issues in the secondary space were trading at a discount to the new issuance, the source said.

But sparking buyer interest in outstanding issues absent of topical news can be a challenge, the source said.

Trading activity continued to center on recent issues although activity in the names was also light.

Redfin Corp.’s 0% convertible notes due 2025 dropped below par on Tuesday as stock continued to trade off.

However, Royal Caribbean Cruises Ltd.’s 2.875% convertible notes due 2023 rose above par for the first time since their secondary market debut on Oct. 14.

Western Digital Corp.’s 1.5% convertible notes due 2024 were active although little changed during Tuesday’s session.

Snap Inc.’s convertible notes continued to trade heading into the release of the company’s earnings, which were reported after the market close.

Redfin below par

Redfin’s 0% convertible notes due 2025 dropped below par for the first time since hitting the secondary space.

The notes were seen trading into a bid of 99.25 in the late afternoon.

They were contracted another 0.125 point to 0.25 point on a dollar-neutral, or hedged, basis, a source said.

The notes remained active with about $10 million in reported volume during Tuesday’s session.

Redfin’s stock traded to a high of $49.44 and a low of $47.11 before closing the day at $47.36, a decrease of 2.73%.

The notes have been coming in after initially skyrocketing in the aftermarket.

They were also contracted about 0.125 point on Monday after expanding as much as 3 points dollar-neutral on their secondary market debut last Friday.

The greenshoe on the deal was recently exercised, raising the total size of the issue to $661.25 million.

Royal Caribbean improves

Royal Caribbean’s 2.875% convertible notes due 2023 returned to focus on Tuesday with the notes improving on an outright and dollar-neutral basis as stock gained.

The 2.875% notes topped par for the first time since their secondary market debut on Oct. 14.

The notes traded up to 100.875 in the late afternoon.

The convertibles expanded about 0.25 point dollar-neutral on the move up, a source said.

The notes saw about $10 million in reported volume.

Royal Caribbean’s stock traded to a high of $62.04 and a low of $60.02 before closing the day at $61.79, an increase of 3.48%.

The 2.875% notes have struggled since hitting the aftermarket on Oct. 14, closing out last week on a 98-handle.

However, Royal Caribbean’s stock was on the rise alongside the broader market on Tuesday on last-ditch stimulus hope.

Western Digital active

Western Digital’s 1.5% convertible notes due 2024 were active although little changed on Tuesday.

The notes continued to trade on a 96-handle.

The bonds saw about $12 million in reported volume and $20 million in estimated volume.

Western Digital’s stock closed Tuesday at $41.41, an increase of 1.2%.

Stock has gained almost 8% since Monday.

While Western Digital’s stock has been on the rise, the 1.5% notes are not equity sensitive.

The notes were once again active on the heels of former convertible issuer Intel’s sale of its flash memory business unit to SK Hynix for $9 billion, a source said.

The sale will transform SK Hynix into one of the largest NAND memory companies in the world.

The consolidation of the NAND memory market is believed to be a positive for Western Digital due to reduced competition.

The sale price is also an indication that Western Digital stock is undervalued, Barron’s reported.

Snap’s earnings

While volume was light, Snap’s convertible notes continued to trade as the market prepared for its earnings report after the market close.

The 0.75% convertible notes due 2026 were changing hands at 146.375 with stock off slightly.

The 0.25% convertible notes due 2025 traded up to 150.25.

The convertible notes were unchanged heading into the company’s earnings report.

Snap’s stock traded to a high of $28.95 and a low of $27.90 before closing the day at $28.45, a decrease of 0.72%.

While stock was down heading into its earnings report, it skyrocketed to $34 in the aftermarket after the company crushed analyst expectations.

Snap reported a profit of 1 cent per share versus analyst expectations for a loss per share of 5 cents.

Revenue was $679 million versus analyst expectations for revenue of $557 million.

The company also reported 11 million new daily active users versus analyst expectations for 5 million new daily active users, MarketWatch reported.

Mentioned in this article:

Snap Inc. NYSE: SNAP

Redfin Corp. Nasdaq: RDFN

Royal Caribbean Cruises Ltd. NYSE: RCL

Western Digital Corp. Nasdaq: WDC

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