Trip.com on tap with new notes; Tesla active amid stock reversal; Southwest slips in line

By Rebecca Melvin

New York, July 13 – The convertibles primary market remained alive on Monday with Trip.com Group Ltd.’s planned offering of up to $500 million of seven-year exchangeable senior notes announced at the session’s open.

The deal caught the attention of market players and was viewed as significantly cheap. A market source reported that at the midpoint of price talk, which was for a coupon of 1.25% to 1.75%, and an exchange premium of 20% to 25%, the paper looked worth 104.94, assuming a credit spread of 750 basis points over Libor and a 35% vol.

The convertibles secondary market was impacted by a significant intraday swing in the broader markets. The swing lower from early gains affected many names. Selling seemed to set in after negative Covid-19 related headlines. California has rolled back its reopening plans, with the California governor closing more indoor operations as the state sees a spike in coronavirus cases; and the superintendent of the Los Angeles school district, the United States’ second largest, announced that the city’s public schools won’t reopen in the fall, but will resume online-only instruction when the new year begins on Aug. 18.

The governor of Texas, another state seeing a spike in coronavirus cases, is shutting down bars and restaurants in the state for a second time, a move that is anticipated to frustrate small businesses especially.

A name that epitomized Monday’s broader market swing was Tesla Inc. Shares of the electric car maker were trading up strongly early in the session, hitting a high of $1,794.99. But the stock swung back to end the day down 3% at $1,497.06. Tesla is expected to report quarterly earnings next week.

The market saw a big turn in many momentum names. The Dow Jones industrial average had been up by 2%, or more than 400 points, but closed higher by only 10.5 points at 26, 085.80.

Southwest Airlines Co.’s 1.25% convertibles due 2025 slipped in tandem with their underlying shares. The notes traded at 119.9 and then later at 119.1, according to Trace data, as the shares underlying the notes slipped by 40 cents, or 1.2% to $32.80. Southwest priced the $2.3 billion convertible issue at the end of April when the stock reference price was $28.50.

American Airlines Group Inc.’s 6.5% convertible notes due 2025 ended the day little changed, but had been moving higher prior to the turnaround.

Trip.com looks cheap

Trip.com’s Regulation S notes were seen “pretty cheap if it’s going to be TCOM credit,” a market source said referring to the company by its ticker symbol. But the source went on to comment that he is not partial to Huazhu Group Ltd., the underlying exchange value for the exchangeable, and therefore his firm is unlikely to make a market in the paper.

Upon exchange, the company will deliver cash, American Depositary Shares of Huazhu Group, each representing one ordinary share of Huazhu, or a combination of cash and Huazhu ADS, at its election subject to certain conditions.

Huazhu shares fell $2.92, or 8%, to $33.63 on Monday.

The new exchangeable was being talked with a 1.25% to 1.75% coupon and with an exchange premium of 20% to 25%.

Southwest stock traded to a high of $33.47 and a low of $32.07 before closing the day at $32.64, a decrease of $0.56, or 1.7%.

The proceeds will be used for general corporate purposes, including repayment of existing debt.

Shanghai-based Ctrip.com is a travel services provider.

Tesla holds in

An active pair of Tesla convertibles managed to mostly hold on to big gains notched on Friday. The Tesla 1.25% convertibles due 2021 were seen up 5.3 points late in the day at 421.63 after having surged 38 points to 416.3 on Friday. After the market close, they were seen at 415.78, which was little changed on the day.

Tesla 2% convertibles due 2024 closed out the session at 499.6, which was up more than a point on the day. The paper had notched a 30.6-point gain on Friday.

Tesla shares closed down $47.59, or 3.1%, to $1,497.06.

Speculation remains that the stock will be added to the S&P 500 index.

Southwest, American fly

The convertibles of airline names continue to be a focus of traders as rumors have circulated in the market about a potential bankruptcy filing from one of the airline companies, sources say.

The travel industry has been among the hardest hit by the Covid-19 pandemic.

Southwest’s 1.25% convertible notes due 2025 traded last at 118.99 which was down 0.9 point on the day. Southwest stock traded to a high of $33.47 and a low of $32.07 before closing the day at $32.64, a decrease of $0.56, or 1.7%.

The 1.25% convertible notes were changing hands around 118 with stock off about 1% from Friday’s session.

American’s 6.5% convertibles due 2025 traded actively on Monday as high as 89, which was up more than three points on an outright basis from Friday. But early gains faded and the note traded last at 85.1 which was down slightly from a closing price of 85.375 on Friday. The price notched higher earlier in the month with several prints going up at 97.

Mentioned in this article:

American Airlines Group Inc. Nasdaq: AAL

Huazhu Group Ltd. ADS: Nasdaq: HTHT

Southwest Airlines Co. NYSE: LUV

Tesla Inc.Nasdaq: TSLA

Trip.com Group Ltd. Nasdaq: TCOM

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