High-grade convertible notes improve; VNET skyrockets post-earnings as put date nears

By Abigail W. Adams

Portland, Me., Nov. 16 – The convertibles primary market remained dormant on Thursday with the window of opportunity for new deal activity before the week draws to a close officially shuttering.

Sources were surprised to not see some activity given the strong market conditions over the past week.

With the Thanksgiving holiday closing U.S. equity and bond markets next Thursday, little is expected from the primary market in the coming week.

However, sources do expect an active end to the year.

Meanwhile, the secondary space remained relatively active on Thursday despite a continued pullback from the spectacular post-CPI rally earlier in the week.

While the macro data released since the CPI report continued to support the market’s expectation for an end to the Fed’s rate hike campaign, it also reflected a weakening economy with recession risk once again coming into view.

Equity indexes were mixed on Thursday as Treasury yields fell on the heels of the latest U.S. jobless claims, which rose to the highest level in two years.

The Dow Jones industrial average closed the session down 46 points, or 0.13%, the S&P 500 index closed up 0.12%, the Nasdaq Composite index closed up 0.07% and the Russell 2000 index closed down 1.52%.

Treasury yields once again came in with the 10-year yield closing the day down 9.2 basis points at 4.436%.

High-grade names once again dominated the tape with several issues improved amid the rate move.

CenterPoint Energy Inc.’s 4.25% convertible notes due 2026 (Baa2), Duke Energy Corp.’s 4.125% convertible notes due 2026 (Baa2/BBB) and American Water Capital Corp.’s 3.625% exchangeable senior notes due 2026 (Baa1/A) each notched gains in heavy volume.

However, VNET Group, Inc.’s (formerly 21Vianet Group Inc.) 0% convertible notes due 2026 claimed the title of the largest gainer of the session.

VNET’s notes skyrocketed as the market expressed increased confidence in the Beijing-based internet and data center service provider’s ability to honor the put on the notes following earnings.

High-grade improves

High-grade names were once again dominating trading with several issues improved amid the rate move.

American Water’s 3.625% exchangeable notes due 2026 continued their strong upward momentum with the notes broaching par for the first time since August.

The 3.625% notes traded just shy of par early in the session and were changing hands at 99.75 in the late afternoon, according to a market source.

There was $14 million in reported volume.

American Water’s stock traded to a high of $133 and a low of $130.84 before closing at $130.99, up 0.41%.

The notes have climbed about 3 points outright over the past three session with the notes on a 97-handle on Monday.

CenterPoint’s 4.25% convertible notes due 2026 also continued to add to the strong gains made over the past week.

The notes edged up about 0.25 point outright to trade at 99.5 early in the session, according to a market source.

They changed hands at 99.375 in the late afternoon.

There was $27 million in reported volume.

CenterPoint’s stock traded to a low of $27.62 and a high of $27.93 before closing the day at $27.66, an increase of 0.86%.

CenterPoint’s 4.25% notes have gained about 2 points outright over the past three sessions.

Duke Energy’s 4.125% convertible notes due 2026 added about 0.5 point outright.

The notes remained on a 98-handle and were seen at 98.5 in the late afternoon, according to a market source.

There was $20 million in reported volume.

Duke Energy’s stock traded to a high of $90.58 and a low of $89.35 before closing at $90.18, up 0.64%.

The notes have added 1.5 points outright over the past three sessions.

VNET skyrockets

VNET’s 0% convertible notes due 2026 surged on Thursday after the Beijing-based internet and data center service provider reported earnings.

The 0% notes shot up 15 points outright as the market expressed increased confidence the company will honor the notes’ upcoming put.

The notes jumped to a 90-handle and were trading in the 90.25 to 90.75 context in heavy volume, a source said.

The yield fell to about 55%.

There was $12 million in reported volume.

The 0% notes were previously trading on a 74-handle with a yield of over 130%.

The notes are not equity sensitive and have long traded based on market speculation about the company’s ability to honor the put.

The notes become putable on Feb. 1, 2024.

However, VNET’s American Depositary Shares were under pressure following earnings and closed the day at $2.61, a decrease of 26.27%.

VNET reported losses per share of 6 cents versus analyst expectations for losses of 7 cents.

Revenue was $258 million versus analyst expectations for revenue of $257 million.

The company also announced a strategic investment of $299 million from two groups beneficially owned by investment holding company Shandong Hi-Speed Holdings Group Ltd.

Mentioned in this article:

American Water Works Co., Inc. NYSE: AWK

CenterPoint Energy Inc. NYSE: CNP

Duke Energy Corp. NYSE: DUK

VNET Group, Inc. Nasdaq: VNET

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