Airline convertibles in focus; American Airlines, JetBlue notes gain; Lucid volatile

By Abigail W. Adams

Portland, Me., April 21 – It was another volatile day in the convertibles secondary space with the market opening the day strong but again turning negative as selling pressure returned to equities.

“Things started out well but they’re not finishing that way,” a source said.

Equity indexes launched the day with strong gains but closed with large losses.

The Dow Jones industrial average closed Thursday down 368 points, or 1.05%, the S&P 500 index closed down 1.48%, the Nasdaq Composite closed down 2.07% and the Russell 2000 index closed down 2.19%.

The rout in Treasuries continued to take a toll on growth stocks as Federal Reserve chairman Jerome Powell confirmed a 50 bps rate hike in May.

However, the continued pressure on growth stocks did not translate into selling activity in the secondary space with the convertible notes of several badly battered stocks quiet despite outsized moves in equities.

While Netflix Inc.’s earnings report continued to weigh on investor sentiment, results have been mixed with the majority of S&P 500 companies that have reported beating expectations.

Despite a heavy day for markets, airlines were flying high on Thursday after American Airlines Group Inc. bested analyst expectations with earnings and forecast a return to profitability.

American’s 6.5% convertible notes due 2025 made large gains on an outright basis although they were moving in line to slightly softer dollar-neutral.

JetBlue Airways Corp.’s 0.5% convertible notes due 2026 were lifted by the results with the notes improved outright and dollar-neutral.

Lucid Group Inc.’s 1.25% convertible notes due 2026 were volatile in active trading with the notes starting the day with outright gains but ending with losses.

Airlines fly

Airlines were in focus on Thursday after American Airlines bested analyst expectations with its first-quarter earnings report and forecast a return to profitability in the second quarter.

The notes rose more than 8 points outright to change hands at 151.5 early in the session.

However, they gave back some outright gains as stock came in as the session progressed.

The notes were up about 3.5 points outright with stock up 4% in the late afternoon.

They were changing hands at 147.5 versus a stock price of $20.53 in the late afternoon.

The notes were moving in line to slightly contracted on a dollar-neutral, or hedged, basis, a source said.

There was $26 million in reported volume in the late afternoon, making it the most actively traded issue in the secondary space.

American Airlines’ stock traded to a high of $21.42 and a low of $20.11 before closing the day at 20.22, an increase of 3.80%.

The airline reported losses per share of $2.32 versus analyst expectations for losses of $2.39.

Revenue was $8.9 billion versus the $8.82 billion expected.

The airline reported record sales in March and expects a return to profitability in the second quarter due to strong travel demand.

American’s results lifted the sector with JetBlue Airways’ 0.5% convertible notes due 2026 gaining on an outright and dollar-neutral basis as a result.

JetBlue’s 0.5% convertible notes gained 2.5 points outright.

They were changing hands at 89.5 versus a stock price of $13.50 in the late afternoon.

The notes expanded 0.625 to 1 point on the move up, a source said.

There was $11 million in reported volume.

The convertibles move on a theoretical delta in the mid-50s, a source said.

JetBlue’s stock traded to a high of $14.07 and a low of $13.39 before closing the day at $13.53, an increase of 3.68%.

Lucid active

Lucid’s 1.25% convertible notes due 2026 were volatile in active trading with the notes launching the day with gains but closing with losses.

The 1.25% notes were up about 2 points outright early in the session to trade on a 74-handle, sources said.

However, the notes closed the day down 0.75 point.

The convertibles were changing hands at 71.75 versus a stock price of $19.83 in the late afternoon.

Lucid’s convertible notes were volatile alongside stock.

Lucid’s stock traded to a high of $21.86 and a low of $19.48 before closing the day at $19.55, a decrease of 6.32%.

Stock was initially posting gains after Tesla Inc. blew away analyst expectations with its earnings report.

However, the high-multiple, growth stock succumbed to selling pressure alongside the broader market as the 10-year Treasury yield again climbed.

Mentioned in this article:

American Airlines Group Inc. Nasdaq: AAL

JetBlue Airways Corp. Nasdaq: JBLU

Lucid Group Inc. Nasdaq: LCID

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.