Convertibles secondary contracts; Royal Caribbean, Airbnb notes hold in heavy volume

By Abigail W. Adams

Portland, Me., Sept. 23 – There was more pain in the convertibles secondary space on Friday as credit spreads blew out and equities collapsed with markets again pricing in a recession.

Indexes saw heavy selling early in the session as a U.K. stimulus package stoked inflationary concern with bets increasing for more aggressive tightening from the Bank of England.

Selling intensified as the session progressed with indexes down more than 2% heading into the late afternoon.

While a round of late day buying pushed indexes off their lows, they ended the day and the week with heavy losses with the Dow Jones industrial average hitting its lowest level of the year.

The Dow closed down 486 points, or 1.62%, the S&P 500 index closed down 1.72%, the Nasdaq Composite index closed down 1.8% and the Russell 2000 index closed down 2.48%.

The convertibles secondary space contracted 0.75 to 1 point on Friday alone.

“Things are coming in points,” a source said. There were signs of panic setting in.

While volume was decent with $74 million on the tape about one hour into the session and $430 million in reported volume heading into the close, there was a reluctance to sell and lock in losses.

The most active names in the secondary space were holding up well amid the selling pressure in the market.

Royal Caribbean Group’s 6% convertible notes due 2025 were lower outright but unchanged dollar-neutral in heavy volume.

Airbnb Inc.’s 0% convertible notes due 2026 were also holding up well in high-volume activity.

Short-duration notes offering a high yield remained in demand with Western Digital Corp.’s 1.5% convertible notes due Feb. 1, 2024 (Baa3) seeing heavy volume.

Arbor Realty Trust Inc.’s 7.5% convertible notes due 2025 saw their yield crack 10% as the notes dropped outright in active trade.

Holding

Royal Caribbean’s 6% convertible notes due 2025 were lower outright but unchanged dollar-neutral in heavy volume.

The 6% notes were down about 5 points outright with stock off almost 7% in intraday activity.

The 6% notes were changing hands at 115.625 versus a stock price of $43.71 in the late afternoon.

There was $20 million in reported volume, making the issue the most actively traded in the secondary space.

Royal Caribbean’s stock traded to a low of $43.27 and a high of $46.04 before closing the day at $44.42, a decrease of 5.43%.

Airbnb’s 0% convertible notes due 2026 were also holding up well in active trading.

The notes were down about 0.75 point outright with stock off less than 2%.

The notes were seen at 82.25 versus a stock price of $100.53 in the late afternoon.

The yield on the notes was 5.72%.

There was $16 million in reported volume.

Airbnb’s stock traded to a high of $103.18 and a low of $99.71 before closing the day at $101.75, a decrease of 1.9%.

Yield

Short-duration, high-yield notes continued to find buyers in the secondary space although yields must now compete with a two-year Treasury note yielding 4.2%.

Western Digital’s 1.5% convertible notes due Feb. 1, 2024 still fit the bill with the notes seeing large volume trades early in the session.

The 1.5% notes were largely unchanged at 94.85 with the notes offering a yield of 5.526%, according to a market source.

The notes are not equity sensitive and have long traded for their yield.

There was $12 million of reported volume with the majority of activity occurring in two $5 million plus trades early in the session.

Arbor Realty’s 7.5% convertible notes due 2025 fell further below par in heavy volume on Friday.

The 7.5% notes were off about 3 points outright with stock down more than 4%.

The notes were changing hands at 93.5 versus a stock price of $12.74 in the late afternoon.

The notes were now offering a yield of 10.125%.

There was $9 million in reported volume.

Arbor Realty’s stock traded to a high of $13.28 and a low of $12.70 before closing the day at $12.91, a decrease of 4.23%.

Mentioned in this article:

Airbnb Inc. Nasdaq: ABNB

Arbor Realty Trust Inc. NYSE: ABR

Royal Caribbean Group NYSE: RCL

Western Digital Corp. Nasdaq: WDC

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