Convertibles secondary contracts; SoFi, Wayfair notes lower; Snap active; Stride surges

By Abigail W. Adams

Portland, Me., Oct. 25 – The convertibles primary market remained dormant on Wednesday with expectations for new deal activity low as markets got pummeled.

There was no clear catalyst for the heavy selling in equities and Treasuries that sent the 10-year yield hurtling back to the 5% threshold.

The escalation of regional tensions in the Middle East, lackluster earnings and a reassessment of rate expectations were pointed to as contributing features.

Expectations for the latest GDP reading, slated for release on Thursday, are high with the home sale figures released Wednesday blowing past expectations.

The strength of the consumer has continued to take markets by surprise with the cooling in consumer spending that many had expected failing to transpire.

“I thought things would have hit the fan a long time ago,” a source said.

The Dow Jones industrial average closed Wednesday down 105 points, or 0.32%, the S&P 500 index was down 1.43%, the Nasdaq Composite index was down 2.43% and the Russell 2000 index was down 1.67%.

There was heavy selling in the convertibles secondary space on Wednesday with the market, in general, contracting 0.25 to 0.5 point dollar-neutral, a source said.

However, there was a liquidation of some more speculative credits which fell points dollar-neutral, the source said.

There was $72 million in reported convertibles trading volume about one hour into the session and $581 million on the tape about one hour before the market close.

SoFi Technologies Inc.’s 0% convertible notes due 2026 were lower in heavy volume as the fintech company’s earnings date approaches.

Wayfair Inc.’s most recently priced 3.5% convertible notes due 2028 also sank on an outright and dollar-neutral basis in active trade.

Etsy Inc.’s 0.25% convertible notes due 2028 were lower with stock under pressure on the heels of an analyst downgrade.

However, Snap Inc.’s convertible notes were notching gains on a red day for stock after the social media company reported earnings.

While the broader market was doom and gloom, Stride Inc.’s (formerly K-12 Inc.) 1.125% convertible notes due 2027 were a shining light with the notes surging outright and making gains on hedge following a large earnings beat.

Heavy

Wednesday marked a heavy day for the convertibles market with speculative names taking a hit as investors shed risk.

SoFi’s 0% convertible notes due 2026 were among the top traded names of the session with the high-premium notes falling 1 point.

The notes were trading at 74.5 with a yield of 10.375% in the late afternoon, according to a market source.

There was $12 million in reported volume.

SoFi’s stock traded to a low of $7.02 and a high of $7.27 before closing at $7.08, a decrease of 4.07%.

The company is slated to report earnings on Oct. 30.

Wayfair’s most recent 3.5% convertible notes due 2028 were lower on an outright and dollar-neutral basis as stock sank alongside broader markets.

The 3.5% convertible notes sank 6 points outright with stock off almost 7%.

The notes were trading at 115.25 versus a stock price of $41.72 early in the session, according to a market source.

The notes traded down to 113.875 versus a stock price of $32.46 in the late afternoon.

The notes contracted on the move down

There was $6 million in reported volume.

Wayfair’s stock traded to a high of $42.54 and a low of $40.32 before closing at $40.33, off 6.99%.

The home decor e-commerce company is scheduled to report earnings on Nov. 1.

While activity in the name tempered as the session progressed, Etsy’s 0.25% convertible notes due 2028 were also lower early in the session.

The heavily busted notes were down about 0.5 point outright as stock shed 3%.

The notes were changing hands at 74.375 versus a stock price of $61.32 early in the session, a source said.

The yield was about 6.875%.

There was $4 million in reported volume.

Etsy’s stock traded to a 52-week low of $60.89 and a high of $63.07 before closing at $62.96, down 2.52%.

Stock took a hit after Citi analysts downgraded the stock to “neutral” from “buy” and reduced its price target $67 from $114.

Snap’s earnings

Snap’s convertible notes were active and notching gains following earnings despite a negative day for stock.

Snap’s 0% convertible notes due 2027 continued to trade on a 74-handle.

The high-premium notes added about 0.5 point outright to trade at 74.5 in the late afternoon.

The yield was about 8.5%.

There was $10 million in reported volume.

Snap’s 0.125% convertible notes due 2028 were up about 0.25 point outright.

They were trading at 68.25 in the late afternoon with the yield about 9.125%, a source said.

There was $7 million in reported volume.

Snap’s stock traded to a low of $9.10 and a high of $10.87 before closing at $9.19, a decrease of 5.36%.

Snap’s stock surged 20% in premarket trading after the social media company posted a large earnings beat.

However, stock fell into negative territory as investors questioned if Snap’s sales growth could continue.

Snap reported earnings per share of 2 cents versus the losses per share of 4 cents expected.

Revenue was $1.19 billion versus the $1.11 billion expected.

Stride’s surge

Stride’s 1.125% convertible notes due 2027 were a shining light on a dark day in the market with the notes making large outright gains and strengthening dollar-neutral after a large earnings beat.

The 1.125% notes jumped 12 points outright with stock up more than 18%.

The notes were trading at 116.5 versus a stock price of $53.31 in the late afternoon, according to a market source.

There was $9 million in reported volume.

Stride’s stock traded to a low of $50.28 and a high of $54.35 before closing at $52.52, an increase of 18.02%.

Stock surged after the online education company posted a large earnings beat that included a surprise profit.

Stride reported earnings per share of 11 cents versus the losses per share of 30 cents expected.

Revenue was $480.18 million versus the $450.77 million expected.

Mentioned in this article:

Etsy Inc. Nasdaq: ETSY

Snap Inc. NYSE: SNAP

SoFi Technologies Inc. Nasdaq: SOFI

Stride Inc. NYSE: LRN

Wayfair Inc. Nasdaq: W

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