MicroStrategy convertible notes for sale; Sarepta gains; Southwest Airlines active

By Abigail W. Adams

Portland, Me., Nov. 28 – The convertibles primary market was dormant on Monday with equities firmly in the red as contagion spread through the crypto world and protests in China rattled investors.

While quiet on Monday, sources expect a burst of activity over the next two weeks as dealers and issuers rush to get deals done before the year comes to a close.

Meanwhile, the secondary space saw an equally slow start to the week with volume light amid the selling pressure in equities.

The Dow Jones industrial average closed Monday down 498 points, or 1.45%, the S&P 500 index closed down 1.54%, the Nasdaq Composite index closed down 1.58% and the Russell 2000 index closed down 2.05%.

There was $50 million in reported volume about one hour into the session and $370 million in reported volume about one hour before the market close.

While volume was light, topical news and end-of-year clean up sparked price movements in some names.

There was “tax selling” in the space with accounts locking in losses on losing positions as the market prepares to close the books on 2022, a source said.

MicroStrategy Inc.’s 0.75% convertible notes due 2025 hit a new outright low and continued to contract dollar-neutral as contagion from the collapse of crypto-exchange FTX spread.

Coinbase Global Inc.’s 0.5% convertible notes due 2026 continued to hover near its all-time low in active trade.

Sarepta Therapeutics Inc.’s 1.25% convertible notes due 2027 hit a new outright high and expanded dollar-neutral after the biopharmaceutical company was granted priority review for one of its products.

Southwest Airlines Co.’s 1.25% convertibles due 2025 (Baa1/BBB) were active with the notes improved dollar-neutral.

Crypto collapse

Losses continued to mount for crypto-exposed convertible notes with Bitcoin under pressure as contagion spreads through the crypto world.

MicroStrategy’s 0.75% convertible notes due 2025 were among the most actively traded names in the secondary space with the notes hitting a new outright low and continuing to contract dollar-neutral.

The 0.75% convertible notes were changing hands at 56.625 versus a stock price of $172.53 in the late afternoon.

The yield on the notes hit 20.625%.

The conversion premium on the notes is about 130% with the notes still trading on a light delta.

The hedge used largely depends on the market player’s outlook on Bitcoin with the Bitcoin bears playing the name on a heavier hedge.

However, the theoretical delta is about 40%.

The 0.75% notes have contracted several points since late last week, a source said.

MicroStrategy’s stock traded to a high of $181.43 and a low of $169.16 before closing the day at $176.67, a decrease of 3.46%.

Coinbase’s 0.5% convertible notes due 2026 were also active with the notes hovering near their all-time low.

The notes were changing hands in the 53.5 to 54 context with the yield just shy of 19.5%.

There was $6 million in reported volume.

Coinbase’s stock traded to a high of $44.90 and a low of $42.02 before closing the day at $42.51, a decrease of 4%.

Bitcoin remained under pressure on Monday as BlockFi became the latest crypto-exchange to file for bankruptcy following FTX’s collapse.

Sarepta’s new heights

Sarepta’s 1.25% convertible notes due 2027 were on the rise on a red day with topical news lifting the notes to a new outright high.

The 1.25% notes traded as high as 111 in intraday activity but came in to close the day on a 109-handle, sources said.

The notes expanded 0.5 point dollar-neutral.

There was $8 million in reported volume.

Sarepta’s stock traded to a high of $123.74 and a low of $116.83 before closing the day at $118.13, an increase of 3.11%.

Stock was on the rise after the company announced the Food and Drug Administration accepted its gene therapy treatment for muscular dystrophy for priority review.

Regulatory action is expected May 29, 2023, according to the company news release.

Southwest improves

Southwest’s 1.25% convertible notes due 2025 improved in active trading.

The 1.25% convertible notes were trading at 129.5 versus a stock price of $38.91 early in the session, according to a market source.

They remained on a 129-handle as the session progressed.

The notes gained about 0.25 point dollar-neutral, a source said.

There was $13 million in reported volume.

Southwest Airlines’ stock traded to a high of $39.14 and a low of $38.46 before closing the day at $38.57, a decrease of 1.66%.

Mentioned in this article:

Coinbase Global Inc. Nasdaq: COIN

MicroStrategy Inc. Nasdaq: MSTR

Sarepta Therapeutics Inc. Nasdaq: SRPT

Southwest Airlines Co. NYSE: LUV

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