High-grade convertible notes active with the Fed in focus; Farfetch paper drops

By Abigail W. Adams

Portland, Me., Dec. 12 – The convertibles primary market remained dormant on Tuesday with many questioning the pipeline as the market enters the final weeks of the year.

However, the secondary space was active with high-grade convertible notes driving volume as markets digest the latest Consumer Price Index report and await the Federal Open Market Committee’s Wednesday announcement.

Equity and Treasury markets saw a muted response to the latest CPI print, which came in largely as expected but still reflected an uptick in inflation.

Equity indexes were either side of unchanged early in the session but gained steam as the session progressed although they closed the day mixed with the small cap index the underperformer.

The Dow Jones industrial average closed Tuesday up 173 points, or 0.48%, the S&P 500 index closed up 0.46%, the Nasdaq Composite index closed up 0.70% and the Russell 2000 index closed down 0.13%.

Treasuries were largely flat.

There was $158 million in reported convertibles trading volume about one hour into the session and $860 million on the tape at market close with the top traders investment grade.

Southern Co.’s 3.875% convertible notes due 2025 (Baa2/BBB), CenterPoint Energy Inc.’s 4.25% convertible notes due 2026 (Baa2) and Evergy Inc.’s recently priced 4.5% convertible notes due 2027 (BBB) were in focus with the notes slightly weaker on Tuesday.

Farfetch Ltd.’s 3.75% convertible notes due 2027 plunged deeper into deeply distressed territory on the heels of a credit rating downgrade.

High-grade trades

High-grade names again dominated the tape on Tuesday on a heavy week for macro data.

The notes were slightly weaker on Tuesday with some trading toward the bid, a source said.

However, there were no dramatic price movements as the market awaits the Fed’s Wednesday announcement.

Evergy’s 4.5% convertible notes due 2027 continued to dominate the tape with the notes hovering around 101.

The notes were changing hands at 101.125 versus a stock price of $51.65 at the market close, a source said.

There was $31 million in reported volume.

Evergy’s stock traded to a high of $51.98 and a low of $51.10 before closing at $51.35, down 0.83%.

Southern Co.’s 3.875% convertible notes were off about 0.25 point outright with stock down 1%.

The notes were trading at 99.875 versus a stock price of $71.34 early in the session, according to a market source.

They remained wrapped around 99.875 in the late afternoon.

There was $18.5 million in reported volume.

Southern Co.’s stock traded to a low of $70.13 and a high of $71.49 before closing at $70.47, down 1.29%.

CenterPoint Energy’s 4.25% convertible notes due 2026 (Baa2) were also active.

The notes were trading just shy of par versus a stock price of $28.93 early in the session.

They remained just shy of par heading into the market close.

There was $15 million in reported volume.

CenterPoint’s stock traded to a low of $28.80 and a high of $29.15 before closing at $29.01, off 0.14%.

Farfetch plunges

Farfetch’s 3.75% convertible notes due 2027 plunged further into deeply distressed territory on Tuesday after a credit rating downgrade.

The 3.75% notes dropped another 10 points to a 25 handle.

They closed the day at 25.5 with the yield rising to 53.875%, according to a market source.

There was $14.5 million in reported volume.

Farfetch’s stock closed Tuesday at $0.63, a decrease of 14.24%.

The convertible notes plunged after Moody’s Investors Service slashed Farfetch’s corporate family rating to Caa2 from B3.

The downgrade was the result of Farfetch’s delayed earnings report and uncertainty regarding the sustainability of its capital structure.

Farfetch’s convertible notes have been on a wild ride since late November.

The notes jumped 18 points on Nov. 28 to a 58-handle on market reports the company was pursuing a sale.

They cratered 23 points to the 34.5 to 35 context on Nov. 29 after the company announced it was delaying its earnings report.

Mentioned in this article:

CenterPoint Energy Inc. NYSE: CNP

Evergy Inc. Nasdaq: EVRG

Farfetch Ltd. NYSE: FTCH

Southern Co. NYSE: SO

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