Convertibles trading quiet as earnings kick off; Live Nation active; Virgin Galactic up

By Abigail W. Adams

Portland, Me., Jan. 13 – The convertibles primary market closed the second week of January with one $1 billion offering under its belt.

Sources were surprised there was not more deal-making over the past week; however, the earnings season blackout, hesitation over potential volatility and focus on the JPMorgan health care conference may have prevented or distracted issuers from coming to market, sources said.

Primary market activity may also be muted in the holiday-truncated week ahead with earnings kicking into high gear.

However, the pipeline is expected to be active in the final weeks of January with demand for new paper strong.

The only new paper of the week, Live Nation Entertainment, Inc.’s 3.125% convertible notes due 2029, continued to see heavy volume on Friday with the notes unchanged after the strong gains made their initial days in the secondary space.

The secondary space remained well bid on Friday as equity indexes shook off early losses to extend their gains from a strong week.

The Dow Jones industrial average closed Friday up 113 points, or 0.33%, the S&P 500 index closed up 0.40%, the Nasdaq Composite index closed up 0.71% and the Russell 2000 index closed up 0.58%.

While the big banks beat expectations, they were sounding the alarm about recession, a source said.

There was $80 million of convertibles trading on the tape about one hour into the session and $527 million in reported volume about one hour into the market close with a wide variety of names in play.

The badly beaten growth stocks of 2021 and 2022 continued to attract buying interest with Virgin Galactic Holdings Inc.’s 2.5% convertible notes due 2027 the focus of attention on Friday.

The 2.5% convertible notes jumped almost 6 points outright with the company announcing a start date for its long-delayed commercial spaceline operations.

The convertible notes of China-domiciled companies also continued to attract attention.

Pinduoduo Inc.’s 0% convertible notes due 2025 continued to add in active trade with the put date for the notes less than one year away.

While volume was light, H World Group Ltd.’s (formerly Huazhu Group Ltd.) 3% convertible notes due 2026 jumped in early trade with the company recently pricing a secondary offering.

A strong start

Live Nation’s 3.125% convertible notes due 2029 continued to see heavy volume although with little change in price.

The 3.125% convertible notes continued to trade on a 103-handle.

They were changing hands at 103.5 versus a stock price of $73.48 in the late afternoon.

There was $19 million in reported volume.

Live Nation’s stock traded to a high of $74.79 and a low of $72.27 before closing the day at $74.66, an increase of 2.05%.

Live Nation kickstarted the primary market with its $1 billion offering of six-year convertible notes.

The deal played to heavy demand during bookbuilding with the deal upsizing and talk tightening.

It has made strong outright and dollar-neutral gains since hitting the secondary space on Wednesday with the greenshoe already exercised in full.

The strong demand for Live Nation’s new notes was seen as a positive sign for future deals.

Virgin Galactic’s takeoff

Virgin Galactic’s 2.5% convertible notes due 2027 made strong gains in active trade on Friday after the space tourism company reaffirmed the launch of spaceline operations in second quarter.

The 2.5% convertible notes jumped almost 6 points outright with stock up 11%.

The notes were seen at 55.625 versus a stock price of $5.04 in the late afternoon, according to a market source.

The yield was 18.625%.

There was $12 million in reported volume.

Virgin Galactic’s stock traded to a low of $4.90 and a high of $5.59 before closing the day at $5.19, an increase of 12.34%.

Virgin Galactic was in focus on Friday after the company announced a new leadership lineup in preparation for the launch of its commercial spaceline operations in the second quarter.

The launch of operations was initially planned for 2022 but was pushed to the second quarter of 2023 after multiple delays.

Virgin Galactic’s 2.5% convertible notes were the first deal to price in 2022 with the notes destroyed amid the destruction in markets.

However, the company ranks among the badly battered growth stocks that have seen renewed interest from investors in 2023.

The reopening

The convertible notes of China-domiciled companies also continued to attract buying interest on Friday.

Pinduoduo’s 0% convertible notes due 2025 continued to add with the put date on the notes less than one year away.

The 0% notes gained 0.375 point outright.

The notes were changing hands at 95.875 in the late afternoon with the yield 4.942%.

There was $9 million in reported volume.

The convertibles are putable on Dec. 1, 2023.

They have made strong gains over the past two weeks with investor confidence in the sector growing amid China’s reopening.

While volume in the off-the-run issue was light, H World Group’s (formerly Huazhu Group) 3% convertible notes due 2026 made large outright gains on Friday.

The 3% notes gained 4.5 points outright with the company’s American Depositary Shares up 2.5%.

The notes were seen at 135 versus an equity price of $48.05 early in the session, according to a market source.

H World’s ADSs traded to a low of $47.18 and a high of $49.06 before closing the day at $47.59, an increase of 1.82%.

The company priced a follow-on offering of 6.19 million shares at $42 on Wednesday, according to a company news release.

Mentioned in this article:

H World Group Ltd. Nasdaq: HTHT

Live Nation Entertainment, Inc. NYSE: LYV

Pinduoduo Inc. Nasdaq: PDD

Virgin Galactic Holdings Inc. NYSE: SPCE

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