CMS, FirstEnergy convertibles improve; Royal Caribbean up outright, down on hedge

By Abigail W. Adams

Portland, Me., May 4 – The whirlwind of activity sparked by $3.1 billion of new supply in the convertibles secondary space slowed on Thursday with markets heavy as regional banks collapsed.

Federal Reserve chair Jerome Powell’s assurance of the stability of the banking sector did little to alleviate investor concerns with the market signaling once again that the Fed is getting it wrong.

“It’s the fact that he didn’t say anything about the banks and they’re getting shredded,” a source said.

Equity indexes closed Thursday in the red with regional banks leading losses.

The Dow Jones industrial average closed down 287 points, or 0.86%, the S&P 500 index closed down 0.72%, the Nasdaq Composite index closed down 0.49% and the Russell 2000 index closed down 1.2%.

The stocks of five to six regional lenders were halted several times during Thursday’s session.

While the broader market was weak with pain in certain areas, panic was not setting into the convertibles secondary space with the deals to price over the course of the week continuing to improve and earnings boosting outstanding issues.

There was $99 million in reported convertibles trading volume about one hour into the session and $565 million on the tape shortly before the market close.

CMS Energy Corp.’s new 3.375% convertible notes due 2028 (Baa2) and FirstEnergy Corp.’s 4% convertible notes due 2026 continued to add dollar-neutral.

Royal Caribbean Group’s deep-in-the-money 6% convertible notes due 2025 gained outright alongside stock following strong earnings and upbeat guidance.

However, profit-taking from outright accounts drove the notes down on a dollar-neutral basis.

Shopify Inc.’s 0.125% convertible notes due 2025 made large gains on an outright and dollar-neutral basis as stock surged on better-than-expected earnings and an asset sale and workforce reduction announcement.

CMS, FirstEnergy add

CMS Energy’s 3.375% convertible notes due 2028 and FirstEnergy’s 4% convertible notes due 2026 continued to add to the strong gains made since hitting the aftermarket despite Thursday’s heavy market conditions.

CMS’ 3.375% convertible notes were changing hands at 101.75 versus a stock price of $60.70 in the early afternoon, a source said.

They were changing hands at 102.125 in the late afternoon.

The notes gained another 0.25 point dollar-neutral.

There was $54 million in reported volume.

CMS’ stock traded to a low of $60.30 and a high of $61.50 before closing at $61.30, an increase of 0.18%.

FirstEnergy’s 4% convertible notes due 2026 were trading at 101.25 versus a stock price of $38.93 early in the session. They were seen at 101.75 in the late afternoon.

The notes added another 0.25 point dollar-neutral, a source said.

There was $24 million in reported volume.

FirstEnergy’s stock traded to a low of $38.21 and a high of $39.04 before closing at $38.91, a decrease of 0.051%.

Royal Caribbean’s earnings

Royal Caribbean’s deep-in-the-money 6% convertible notes due 2025 were active following better-than-expected earnings with the notes gaining outright but falling dollar-neutral.

The 6% notes gained 9 points outright with stock up 7%.

The notes were seen at 165.25 versus a stock price of $72.33 early in the session, according to a market source.

They were trading just shy of 166 versus a stock price of $73.05 in the late afternoon.

However, the notes contracted about 0.5 point dollar-neutral on the move up with profit-taking by outright accounts dragging the notes down.

There was $12 million in reported volume.

Royal Caribbean’s stock traded to a low of $70.58 and a high of $73.44 before closing at $71.88, an increase of 7.16%.

Royal Caribbean bested analyst expectations for first-quarter earnings with losses per share of 23 cents, versus the losses of 69 cents expected, and revenue of $2.89 billion, versus the $2.82 billion expected.

The cruise line operator also upped its guidance.

Shopify’s earnings

While volume in the name was light, Shopify’s 0.125% convertible notes due 2025 were on the rise after the company reported strong earnings and an asset sale.

The 0.125% notes jumped 2 points outright with stock up 25%.

The paper was wrapped around 90 with a yield of 4.375% heading into the market close.

The notes gained 1 point dollar-neutral, a source said.

Shopify’s stock traded to a low of $53.88 and a high of $59.82 before closing at $57.30, an increase of 23.87%.

Stock surged after the e-commerce company reported earnings per share of 1 cent versus analyst expectations for losses per share of 4 cents.

Revenue was $1.51 billion versus analyst expectations of $1.44 billion.

Shopify also announced that it was selling its delivery and logistics business and planned to lay-off about 20% of its workforce.

Mentioned in this article:

CMS Energy Corp. NYSE: CMS

FirstEnergy Corp. NYSE: FE

Royal Caribbean Group NYSE: RCL

Shopify Inc. NYSE: SHOP

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