Splunk convertibles in focus on buyout by Cisco Systems; NIO comes in; Travere plunges

By Abigail W. Adams

Portland, Me., Sept. 21 – The convertibles primary market was quiet on Thursday with new deal volume for the week standing at $1.15 billion, which priced in two deals, with NIO Inc.’s $1 billion two-tranche offering of convertible notes taking center stage.

While the pace of new issuance has slowed, more activity is expected in the final week of September with a higher-for-longer rate hike narrative expected to drive issuers to the market.

Activity in the secondary space subsided on Thursday with the market soft amid continued selling in equities following Wednesday’s Fed announcement.

The Dow Jones industrial average closed Thursday down 370 points, or 1.08%, the S&P 500 index closed down 1.64%, the Nasdaq Composite index closed down 1.82% and the Russell 2000 index closed down 1.56%.

There was $97 million in reported volume about one hour into the session and $400 million on the tape in the late afternoon.

With activity surrounding NIO’s new convertible notes tempering on Thursday, topical news was the driver of activity in the space with all eyes on Splunk Inc.

Splunk’s convertible notes were in focus with the notes up outright but mixed on hedge following news Cisco Systems Inc. was acquiring the software company in an all-cash transaction.

Travere Therapeutics Inc.’s 2.25% convertible notes due 2029 plunged outright as stock collapsed following a failed clinical study.

Splunk in focus

Splunk’s convertible notes dominated activity in the secondary space on Thursday following news Cisco would acquire the company in a $28 billion all-cash transaction.

While the convertible notes made large outright gains as stock jumped more than 20%, they were mixed on hedge with holders of Splunk’s shorter-duration 1.125% convertible notes due 2025 standing to lose in the takeover while holders of the 1.125% convertible notes due 2027 stood to gain.

The 1.125% convertible notes due 2027 jumped 6 points outright.

The notes were changing hands at 93.625 versus a stock price of $144.60 early in the session, according to a market source.

They were changing hands at 93.5 in the late afternoon.

There was $43 million in reported volume.

The 1.125% convertible notes due 2025 rose about 4 points outright.

They were trading at 107.125 versus a stock price of $144.57 early in the session, a source said.

The notes were trading at 106.875 in the late afternoon.

There was $36 million in reported volume.

Splunk’s stock traded to a low of $144.24 and a high of $145.81 before closing at $144.43, an increase of 20.77%.

Stock surged after Cisco announced it would acquire the software company for $157 per share in an all-cash transaction.

The acquisition carries an equity valuation of $28 billion, marking Cisco’s largest acquisition to date.

The convertible notes will be taken out in the takeover.

While outright accounts stand to gain, hedge holders of the shorter-duration notes will lose in the takeout matrix while hedge holders of the 2027 notes will gain, a source said.

However, the acquisition is not expected to close for nine months to a year and must gain regulatory approval.

NIO weaker

NIO’s convertible notes gave back some of the gains made on their aftermarket debut with equity heavy alongside the broader market.

The 3.875% convertible notes due 2029 fell 2.5 points outright to return to par.

They were changing hands at 100.125 versus an equity price of $8.53 in the late afternoon.

The notes contracted on the move down, a source said.

There was $10 million in reported volume.

The 4.625% convertible notes due 2030 sank 1.625 points outright.

They were seen at 100.75 versus a stock price of $8.56 in the late afternoon.

While the notes were also weaker on hedge, they held up better than their shorter-duration counterpart, a source said.

There was $8 million in reported volume.

NIO’s American Depositary Shares traded to a low of $8.35 and a high of $8.62 before closing at $8.45, a decrease of 4.20%.

Travere craters

Travere’s 2.25% convertible notes due 2029 plunged outright in active trade as stock collapsed following a disappointing clinical trial.

The notes sank 14 points outright with stock down 40%.

They were trading at 61.625 versus a stock price of $7.48 in the late afternoon, according to a market source.

The yield rose to 12%.

There was $12 million in reported volume.

Travere’s stock traded to a high of $7.80 and a low of $7 before closing at $7.64, a decrease of 40.68%.

Travere collapsed after a confirmatory study for the company’s kidney disease treatment failed.

The treatment had received accelerated Food and Drug Administration approval.

However, continued approval was contingent on the confirmatory study.

While the treatment narrowly failed the study, it is unclear if the FDA will pull its approval.

Mentioned in this article:

NIO Inc. NYSE: NIO

Splunk Inc. Nasdaq: SPLK

Travere Therapeutics Inc. Nasdaq: TVTX

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