Travel names eyed; American Airlines, Royal Caribbean convertibles rise; Affirm gains

By Abigail W. Adams

Portland, Me., Jan. 12 – The convertibles primary market remained dormant on Thursday with Live Nation Entertainment Inc.’s $900 million issue of 3.125% convertible notes due 2029 poised to be the sole deal of the week.

Sources were surprised the primary market was not more active over the past week given the market’s strong reception to Live Nation’s deal and the strength in equity markets.

However, the earnings season blackout and anticipated volatility surrounding the release of the U.S. Consumer Price Index report may have been keeping deals at bay, sources said.

While sources did not see the amount of new paper expected, the secondary space was hopping throughout the week with topical news and the market’s renewed risk-on sentiment jumpstarting activity in the space.

The secondary market remained well bid in active trade on Thursday as markets digested the latest CPI report and jobless claims numbers.

While equity markets saw a choppy open, indexes closed firmly in the green with the Dow Jones industrial average up 217 points, or 0.64%, the S&P 500 index up 0.34%, the Nasdaq Composite index up 0.64% and the Russell 2000 index up 1.58%.

While indexes swung between gains and losses early in the session, the market response to the latest CPI report was muted in comparison to previous reports with December’s inflationary numbers falling in line with expectations.

With the highly anticipated CPI report released, the market’s attention will shift to earnings with the season set to launch on Friday.

Early earnings releases have already been drivers of trading activity in the secondary space with Thursday no exception.

There was $90 million in reported volume about one hour into the session and $538 million on the tape about one hour before the market close.

American Airlines Group Inc.’s 6.5% convertible notes due 2025 dominated activity in the secondary space with the notes rising alongside stock after the airline upped its forward guidance.

Royal Caribbean Group’s 6% convertible notes due 2025 also took off alongside stock after an analyst upgrade.

Meanwhile, the convertible notes of some badly battered growth stocks continued to log strong gains in secondary trading.

Affirm Holdings Inc.’s 0% convertible notes due 2026 continued to shoot higher in heavy volume on Thursday.

Peloton Interactive Inc.’s 0% convertible notes due 2026 were also lifted in active trade.

American Airlines rises

American Airlines’ 6.5% convertible notes due 2025 dominated trading on Thursday with the notes lifted alongside stock after the airline upped its fourth-quarter guidance.

The 6.5% convertible notes climbed 7 points outright with stock up more than 9%.

The notes were changing hands at 122.25 versus a stock price of $16.07 early in the session, a source said.

They traded up to 124.875 versus a stock price of $16.70 in the late afternoon.

There was $32 million in reported volume.

American Airlines’ stock traded to a low of $15.88 and a high of $16.90 before closing the day at $16.83, an increase of 9.71%.

Stock climbed after the company raised its projected fourth-quarter revenue growth to 16% to 17% from the previous 11% to 13% and raised its projected earnings per share to $1.12 to $1.17 from the previous estimate of 50 cents to 70 cents.

American Airlines is scheduled to release earnings on Jan. 18.

Royal Caribbean’s upgrade

Royal Caribbean’s 6% convertible notes due 2025 were also lifted in heavy volume after an analyst upgrade sent stock soaring.

The 6% convertible notes climbed 5 points outright with stock up about 6%.

The notes rose to a 148-handle and were changing hands at 148.75 heading into the market close.

There was $14 million in reported volume.

Royal Caribbean’s stock traded to a high of $63.37 and a low of $59.39 before closing the day at $62.44, an increase of 5.47%.

Stock was lifted after a Morgan Stanley analyst upgrade with the cruise line operator pegged as the strongest in its peer group.

Morgan Stanley lifted Royal Caribbean’s stock to “equal weight” from “underweight” and raised its price target to $50 from $40.

Growth

The convertible notes of badly battered credits continued their strong uptrend on Thursday as investors eyed bargains among the biggest losers of 2021 and 2022.

Affirm’s 0% convertible notes due 2026 continued to see buying interest with the notes lifted another 3 points outright after the strong gains of the previous session.

The 0% convertible notes traded as high as 62.75 on Thursday but came in to close the day at 61.5.

There was $12 million in reported volume.

The notes have gained 6 points over the past week.

While the notes trade on a low delta, Affirm’s stock continued its upswing to close Thursday at $12.20, an increase of 7.77%.

Peloton’s 0% convertible notes due 2026 were also on the rise in heavy volume during Thursday’s session.

The 0% convertible notes added 2 points outright.

They were seen at 75.75 in the late afternoon with the yield about 9.25%.

There was $11 million in reported volume.

While Peloton’s convertible notes are also long busted, Peloton’s stock closed Thursday at $11.10, an increase of 2.59%.

Peloton has long been eyed as a potential takeover target.

Mentioned in this article:

Affirm Holdings Inc. Nasdaq: AFRM

American Airlines Group Inc. Nasdaq: AAL

Live Nation Entertainment Inc. NYSE: LYV

Peloton Interactive Inc. Nasdaq: PTON

Royal Caribbean Group NYSE: RCL

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