Herbalife in focus on leadership change; Varonis tanks outright, expands dollar-neutral

By Abigail W. Adams

Portland, Me., Nov. 1 – It was a quiet day in the convertibles secondary space on Tuesday as equities wobbled between gains and losses ahead of rate day.

Equity indexes opened the day strong, but selling pressure quickly set in with indexes mixed at the close as small cap stocks continued to outperform.

The Dow Jones industrial average closed Tuesday down 80 points, or 0.24%, the S&P 500 index closed down 0.41%, the Nasdaq Composite index closed down 0.89% and the Russell 2000 index closed up 0.25%.

The market widely expects the Federal Open Market Committee to raise interest rates by 75 basis points on Wednesday; however, bets are still out on what to expect in December, sources said.

There was $76 million in reported volume about one hour into the session and $400 million on the tape about one hour before the market close.

Twitter Inc.’s 0% convertible notes due 2026 continued to see heavy volume on “end of life” trades, a source said.

While the secondary space was largely quiet outside of Twitter, earnings-related news sparked activity in some outstanding issues.

Herbalife Nutrition Ltd.’s 2.625% convertible notes due 2024 were active although largely unchanged after the surprise ouster of the company’s CEO was announced alongside earnings.

Varonis Systems Inc.’s 1.25% convertible notes due 2025 tanked outright but saw a large dollar-neutral expansion as stock got crushed following an earnings miss.

Twitter trades

Twitter’s 0% convertible notes due 2026 continued to dominate the tape on Tuesday with the notes slowly inching up to their takeout price.

The 0% convertible notes were wrapped around 99.875 in heavy volume.

There was $45 million on the tape in the late afternoon.

The notes will soon be taken out at par with the heavy volume “end-of-life” trades, a source said.

Herbalife in focus

Herbalife’s 2.625% convertible notes due 2024 were in focus on Tuesday after the surprise ouster of the company’s CEO was announced alongside earnings.

The 2.625% notes were little changed in the heavy volume.

The notes remained on a 92-handle throughout the session and were changing hands just shy of 92.75 versus a stock price of $21.19 in the late afternoon, according to a market source.

The yield on the notes was about 8.375%.

There was $17 million in reported volume.

Herbalife’s stock traded to a high of $21.45 and a low of $20.74 before closing the day at $20.91, a decrease of 1.65%.

Herbalife’s convertible notes were in focus after a leadership shakeup at the company.

Herbalife announced current chairman and former CEO Michael Johnson would return to the helm of the company as interim CEO following a slow-down in sales.

Herbalife reported a large earnings beat of 91 cents a share versus the 80 cents expected and revenue of $1.3 billion, which was in line with expectations.

However, revenue was a 9.5% year-over-year decrease, according to a company news release.

Varonis’s earnings

Varonis Systems’ 1.25% convertible notes due 2025 tanked outright but saw a large dollar-neutral expansion as stock got crushed following an earnings miss.

The 1.25% convertible notes fell 20 points outright with stock down 35%.

The convertibles were trading at 94.375 versus a stock price of $17.92 early in the session.

They remained on a 94-handle for the duration of the session.

The notes expanded 3 to 4 points dollar-neutral on the move down, sources said.

The theoretical hedge on the notes was about 73%, a source said.

There was $6 million in reported volume.

Varonis’ stock traded to a high of $19.01 and a low of $17.01 before closing the day at $17.27, a decrease of 35.49%.

The data security company’s stock cratered after an earnings miss and downbeat guidance.

Varonis reported earnings per share of 5 cents versus the 6 cents expected. Revenue was $123.31 million versus the $124.4 million expected.

Mentioned in this article:

Herbalife Nutrition Ltd. NYSE: HLF

Varonis Systems Inc. Nasdaq: VRNS

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