Fastly convertibles in focus, drop post-earnings; Affirm weaker; Western Digital active

By Abigail W. Adams

Portland, Me., Feb. 17 – Thursday marked a brutal day for equities with mounting tensions over the Ukraine driving indexes down more than 2%.

The Dow Jones industrial average was the outperformer and closed the day down 622 points, or 1.78%. However, the S&P 500 index closed down 2.12%, the Nasdaq Composite closed down 2.88% and the Russell 2000 index closed down 2.46%.

While investors were fleeing equities, the selling activity in the convertibles secondary space was orderly with no real panic setting in.

“Nobody wants to be long equities over the weekend,” a source said.

There was $90 million in reported volume about one hour into the session and $585 million on the tape about one hour before the market close.

Earnings-related volatility continued to be the main driver of trading activity in the space.

Fastly Inc.’s 0% convertible notes due 2026 were in focus and lower outright but flat dollar-neutral as stock tanked double-digits following earnings.

Affirm Holdings Inc.’s 0% convertible notes due 2026 continued their downward spiral as stock continued to get pummeled by Thursday’s sell-off.

Western Digital Corp.’s 1.5% convertible notes due 2024 saw heavy volume although with little movement in price.

Fastly in focus

Fastly’s 0% convertible notes due 2026 were in focus on Thursday as stock tanked double digits following earnings.

The notes were down outright and contracted on a dollar-neutral basis early in the session.

However, they pared their dollar-neutral losses as the session progressed to close the day largely flat on swap.

The 0% notes were down about 3 points outright as stock tanked more than 30%.

The notes were changing hands at 75.875 versus a stock price of $20.17 early in the session.

They traded at 75.25 versus a stock price of $19.45 in the late afternoon.

The notes were now yielding 7.115%.

The notes were the most actively traded during Thursday’s session with more than $37 million in reported volume.

The 0% notes have been long been busted with the conversion premium on the notes over 200%, a source said.

However, there is still a small hedge on the name.

Fastly’s stock traded to a high of $21.40 and a low of $19.13 before closing the day at $19.20, a decrease of 33.63%.

While Fastly beat expectations on both the top and bottom lines, stock plunged on weak guidance.

The cloud computing service provider reported a loss per share of 10 cents versus the 16 cents expected.

Revenue was $92.48 million versus the $97.72 million expected.

Affirm lower

Affirm’s 0% convertible notes due 2026 continued their downward momentum as stock again sank double digits.

The 0% convertible notes were down about 2 points outright with stock off more than 12%.

The notes were trading at 71 versus a stock price of $38.45 in the late afternoon.

The notes currently trade on a 40% delta and were slightly weaker dollar-neutral.

However, the 0% convertible notes mostly trade for their fixed income features.

The yield on the notes is 7.4% and, even after the plunge in the company’s stock, the buy now pay later firm has a market cap of $10.72 billion.

There was more than $22 million in reported volume.

“Either its equity is still way overvalued or the bonds are super cheap,” a source said.

Affirm’s stock continued its downward momentum amid the weakness in the broader market.

Stock traded to a high of $43 and a low of $37.51 before closing the day at $37.67, a decrease of 12.23%.

Affirm’s stock has fallen almost 50% since the release of earnings on Feb. 10.

Western Digital flat

Western Digital’s 1.5% convertible notes due 2024 saw heavy volume on Thursday although with little movement in price.

The 1.5% notes continued to trade around 98.5 in large volume.

While Western Digital’s stock was in the green on Thursday, the short-duration notes trade for their yield, which was about 2.5%, a source said.

There was about $22 million in reported volume heading into the close.

Mentioned in this article:

Affirm Holdings Inc. Nasdaq: AFRM

Fastly Inc. NYSE: FSLY

Western Digital Corp. Nasdaq: WDC

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