Luckin Coffee convertible notes continue to dominate; Nio adds to gains; Snap expands

By Abigail W. Adams

Portland, Me., Jan. 17 – The convertible primary market was dormant throughout the week with no new deals pricing.

Despite the lack of new paper, the secondary space saw abnormally high trading volume.

While activity tempered, volume remained high for a Friday before a long weekend with $565 million on the tape heading into the late afternoon.

Estimated volume topped $1.5 billion by the market close.

The secondary space rounded out the active week on firm footing with the market in general up about 0.25 point, a market source said.

Luckin Coffee Inc.’s 0.75% convertible notes due 2025 continued to dominate activity in the secondary space with the notes again on the rise.

Nio Inc.’s 4.5% convertible notes due 2024 also continued their upward momentum on Friday.

Snap Inc.’s 0.75% convertible notes due 2026 saw renewed attention in the secondary space with the notes second only to Luckin Coffee in reported volume.

The 0.75% notes were making gains on an outright and dollar-neutral basis as stock shot up following an analyst upgrade.

While the convertible primary market was on hiatus over the past week, it is expected to return to action during the Jan. 21 week with some new deals on the horizon, sources said.

Luckin gains continue

Luckin Coffee’s 0.75% notes due 2025 continued to dominate activity in the secondary space with the notes again making gains.

The notes traded north of 115 early in Friday’s session with stock up more than 4%.

They were changing hands at 114.5 in the late afternoon as stock came in from its highs.

The notes were up another 0.5 point dollar-neutral, a market source said.

“These things are caffeinated,” the source said. “They’re turbo-charged.”

Sources also recently described the notes as “a monster” and “a beast” for their meteoric rise since pricing.

The Beijing-based coffee shop chain’s ADS traded as high as $51.38 and as low as $49.06 before closing Friday at $50.02, an increase of 3.07%.

Luckin Coffee’s convertible notes have skyrocketed since pricing late last week. The notes have expanded 7 points dollar-neutral since hitting the secondary space on Jan. 10.

While there was concern about the borrow on the ADS prior to pricing, the borrow improved mid-week which helped fuel the rally of the notes, a source said.

The greenshoe on the notes was also recently exercised in full, lifting the total size of the issue to $460 million.

Nio up again

Nio’s 4.5% convertible notes due 2024 also continued their upward momentum on Friday.

The 4.5% notes traded up to 67 early in the session and continued to climb to 67.25 in the late afternoon, sources said.

There was about $7 million in dealer to client buys compared to $3 million dealer to client sells on Friday with the demand pushing the notes higher.

The 4.5% notes began the week trading at 49.

Nio’s equity also continued to gain on Friday.

The Shanghai-based electric car manufacturer’s ADS traded up to $4.67, an increase of 6.86%.

Shares were continuing to gain following news the struggling carmaker may receive a cash infusion of $1 billion from China automaker GAC Group, which will cover its cash flow needs through 2020.

While the funding has not yet been confirmed, the bonds were trading as though some type of financing was on the way, a market source said.

Snap expands

Snap’s 0.75% convertible notes due 2026 were among the top volume movers during Friday’s session with the notes posting gains on an outright and dollar-neutral basis.

The 0.75% notes traded up more than 3 points outright. They were changing hands at 114 in the late afternoon.

The bonds were expanded about 0.5 point dollar-neutral, a market source said.

The bonds saw high volume activity as stock shot up more than 5% in intraday trading.

Stock traded as high as $19.29 and as low as $18.76 before closing the day at $19.11, an increase of 4.71%.

Stock jumped after a UBS analyst upgraded the social media company to a buy and raised its price target to $24.00 from $16.00.

Stock has steadily been gaining strength throughout January and has recently received a slew of analyst upgrades with many saying it is a stock to watch in 2020.

The parent company of Snapchat received upgrades from analysts at Jefferies and Cowen last week.

Mentioned in this article:

Luckin Coffee Inc. Nasdaq: LK

Nio Inc. NYSE: NIO

Snap Inc. NYSE: SNAP

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