iQIYI convertibles gain on closing of private placement; MicroStrategy notes lower

By Abigail W. Adams

Portland, Me., Jan. 3 – While equity markets launched the New Year with continued volatility, the convertibles primary and secondary space saw a quiet start to 2023.

No new deals launched on Monday with primary activity expected to be light during the abbreviated week.

However, the deals will be coming, sources said, with an uptick of issuance expected in the new year.

Meanwhile, secondary trading volumes were light as equity indexes swung between gains and losses – an indication that the volatility of 2022 will continue into the foreseeable future.

After opening with strong gains, indexes quickly sank into negative territory although they pared their losses and closed well off the lows of the day.

The Dow Jones industrial average closed Tuesday down 11 points, or 0.03%, the S&P 500 index closed down 0.40%, the Nasdaq Composite index closed down 0.76% and the Russell 2000 index closed down 0.60%.

There was $84 million in reported convertibles trading volume about one hour into the session and $335 million on the tape about one hour before the market close.

However, true trading volume was much lighter with an internal cross, or the transfer of issues between internal portfolios, inflating volume.

Portfolio rebalancing and topical news were the drivers of activity in the space with MicroStrategy Inc.’s 0.75% convertible notes due 2025 lower in active trading.

iQIYI, Inc.’s 2% convertible notes due 2025 made large gains following news the Beijing-based streaming service had closed on the $500 million convertible note private placement announced in August.

MicroStrategy lower

MicroStrategy’s beleaguered 0.75% convertible notes due 2025 moved further into distressed territory in active trading on Tuesday.

The 0.75% notes were down about 1 point outright despite a green day for stock and minor losses for Bitcoin.

The notes were seen at 47.375 in the late afternoon versus a stock price of $141.95.

The yield was 28.24%, according to a market source.

There was $10 million in reported volume.

MicroStrategy’s stock traded to a high of $146.52 and a low of $139.38 before closing the day at $145.02, an increase of 2.44%.

The 0.75% notes were on a steady downtrend in December as investors fled the crypto space in the wake of crypto-exchange FTX’s bankruptcy filing.

iQIYI improves

iQIYI’s 2% convertible notes due 2025 were the major movers of Tuesday’s session with the notes making strong gains after announcing the closing of a $500 million convertible note private placement.

The 2% notes rose 4 points outright to an 85-handle.

They were changing hands 85.25 versus an equity price of $5.50 early in the session, according to a market source.

The yield to put narrowed to 74.375%.

There was $7 million in reported volume.

While the notes were in focus early in the session, activity in the name petered out as the session progressed.

The notes are largely a yield play.

However, iQIYI’s American Depositary Shares traded to a high of $6.25 and a low of $5.50 before closing the day at $5.88, an increase of 10.94%.

iQIYI’s capital structure was boosted after the company announced the completion of its $500 million private placement of 6% convertible notes due 2028 with an affiliate of PAG Asia.

And while iQIYI’s equity jumped on Tuesday, the major move came in the final trading days of the year.

“The stock knew something,” a source said.

iQIYI’s capital structure was lifted when the private placement was initially announced in August 2021 with the 2% convertible notes trading as high as a 90-handle.

However, the notes saw heavy selling in December with investors questioning whether the private placement would close.

The 2% notes sank to a 73-handle in mid-December with large sellers in the market.

However, the notes pared their losses to close 2022 on an 81-handle.

The notes have long been a yield play with the 2% notes putable on April 1, 2023.

The private placement helped bolster investor confidence in the company’s ability to honor the put, sources previously said.

Mentioned in this article:

iQIYI, Inc. Nasdaq: IQ

MicroStrategy Inc. Nasdaq: MSTR

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