Two Harbors in focus, expands; Southwest, LivePerson active; SmileDirectClub down outright

By Abigail W. Adams

Portland, Me., July 13 – There was an uptick of activity in the convertibles secondary space on Tuesday with equity markets volatile on the heels of a higher-than-expected June inflation report and a Treasury auction that saw the 10-year breakeven rate, a proxy for the average inflation rate, hit 2.375%.

While equities shook off the inflation report and were positive early in the session, they sold off following the Treasury auction with the Dow Jones industrial average down 107 points or 0.31%, the S&P 500 index down 0.35%, the Nasdaq Composite down 0.38%, and the Russell 2000 index down 1.88%.

There was $361 million on the tape about one hour before the market close.

With the primary market again dormant on Tuesday and expected to remain so until companies emerge from their earnings season blackouts, company news and stock moves were the main drivers of trading activity in the space.

Two Harbors Investment Corp.’s 6.25% convertible notes due 2026 were in focus as stock tanked on the heels of a secondary offering.

While down outright, the notes “held up very well,” on a dollar-neutral basis, a source said.

Travel and leisure stocks were taking a hit on Tuesday as concern over a surge in the Delta variant of Covid-19 spooked investors.

Southwest Airlines Co.’s 1.25% convertibles due 2025 were active although little changed.

LivePerson Inc.’s 0% convertible notes due 2026 also saw some activity although with little movement in price.

SmileDirectClub Inc.’s 0% convertible notes due 2026 were trading off on an outright basis following a swath of negative headlines.

Two Harbors in focus

Two Harbors’ 6.25% convertible notes due 2026 were in focus on Tuesday with the notes down outright but expanding dollar-neutral as stock tanked on the heels of a secondary offering.

The notes were down about 2 points outright with stock off as much as 8%.

They were marked at 104.875 bid, 105.375 offered early in the session.

They continued to trend lower as the session progressed and were seen changing hands at 104.25 versus a stock price of $6.64 in the late afternoon.

While down outright, the notes “held up very well” on hedge, a source said.

The notes expanded between 1.75 to 2 points on a dollar-neutral basis.

The notes were trading on a 30% delta following the stock move, a source said.

Two Harbors’ stock traded to a high of $6.76 and a low of $6.55 before closing the day at $6.66, a decrease of 9.14%.

Stock dropped after the mortgage REIT announced a secondary offering of 40 million shares.

Active

Southwest’s 1.25% convertible notes due 2025 and LivePerson’s 0% convertible notes due 2026 also saw some action on Tuesday although with little movement in price.

Southwest’s 1.25% convertible notes were changing hands at 149.375 versus a stock price of $52.28 in the late afternoon, according to a market source.

There was more than $10 million in reported volume.

Southwest’s stock traded to a high of $52.63 and a low of $51.50 before closing the day at $51.57, a decrease of 2.66%.

LivePerson’s 0% convertible notes also made an appearance on the tape.

The 0% convertible notes were changing hands at 105.875 versus a stock price of $59.78 in the late afternoon.

There was more than $9 million in reported volume.

LivePerson stock traded to a high of $61.59 and a low of $59.59 before closing the day at $59.88, a decrease of 1.37%.

While stock sold off alongside the broader market heading into Tuesday’s close, it popped midsession.

The artificial intelligence technology company set the date for its second-quarter earnings report on Tuesday, which will be post-close Aug. 3.

SmileDirectClub under pressure

SmileDirectClub’s 0% convertible notes due 2026 were again under pressure on Tuesday following a swath of negative headlines.

The 0% notes dropped about 1 point outright with stock off over 4%.

They were changing hands at 78 versus a stock price of $7.36 in the late afternoon, according to a market source.

There was more than $6 million in reported volume.

SmileDirectClub’s stock traded to a high of $7.62 and a low of $7.28 before closing the day at $7.38, a decrease of 4.28%.

Stock dropped after Zacks Investment Research designated the company its bear of the day.

News also broke recently that the Australia Competition and Consumer Commission had begun court proceedings against the company.

The complaint alleges that SmileDirectClub misled consumers into thinking their teeth aligners were eligible for insurance reimbursement.

Mentioned in this article:

LivePerson Inc. Nasdaq: LPSN

SmileDirectClub Inc. Nasdaq: SDC

Southwest Airlines Co. NYSE: LUV

Two Harbors Investment Corp. NYSE: TWO

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