Morning Commentary: Lyft convertible notes sink outright, expand dollar-neutral

By Abigail W. Adams

Portland, Me., May 4 – The convertibles secondary space was quiet early Wednesday with all eyes on the Federal Reserve’s afternoon announcement on interest rates.

Equity indexes were mixed early in the session as the market awaits the Federal Reserve’s widely anticipated 50 basis point rate increase and information about the central bank’s planned path forward.

The Dow Jones industrial average remained in positive territory and was up 24 points, or 0.08%, shortly before 11 a.m. ET.

However, the S&P 500 index was down 0.38%, the Nasdaq Composite index was down 1.41% and the Russell 2000 index was off 0.83%.

While the overall secondary space was quiet, Lyft Inc.’s 1.5% convertible notes due 2025 were not.

The 1.5% notes were firmly in the spotlight with the notes sinking outright in heavy volume but expanding dollar-neutral as stock cratered post-earnings.

The 1.5% convertible notes fell 15 points outright as stock dropped more than 30%.

The notes were changing hands at 93, the first time the notes have traded below par since 2020.

However, the notes expanded about 0.75 point on a 60% hedge, a source said.

Lyft’s stock was changing hands at $20.32, a decrease of 33.94%, shortly before 11 a.m. ET.

Lyft reported a large earnings beat of 7 cents per share versus analyst expectations for a loss of 7 cents per share and revenue of $875.58 million versus the $845.91 million expected.

However, stock cratered after the company missed expectations on active riders and issued weak guidance with the company projecting $1 billion in revenue in the second quarter versus expectations for revenue of $1.7 billion.

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