Zynga convertible bonds add to gains; Lumentum active on profit-taking; Peloton trades

By Abigail W. Adams

Portland, Me., Jan. 11 – The convertibles primary market remained dormant on Tuesday with prospects for new deal activity in January diminishing.

While equities broke their rout on Tuesday, the volatility in markets has caused more than one prospective offering to be postponed, sources said.

Share prices are a major determining factor in when small cap companies tap the market, a source said, with the sell-off in equities a major drag on primary market activity.

Meanwhile, the tone in the secondary space improved on Tuesday with equities lifted on the heels of Federal Reserve chair Jerome Powell’s congressional testimony.

While indexes were negative early in the session, they turned positive as the session progressed with the 10-year Treasury yield erasing its gains.

The Dow Jones industrial average closed the day up 183 points, or 0.51%, the S&P 500 index closed up 0.92%, the Nasdaq Composite closed up 1.41%, and the Russell 2000 index closed up 1.05%.

While the 10-year Treasury yield hit 1.85% shortly before 11 a.m. ET, it erased its gains and closed the day at 1.742%.

There was almost $100 million in reported convertible bond trading early in the session and $600 million on the tape shortly before the market close.

However, there was a wide range of names in play with no clear theme to the trading activity.

Zynga Inc.’s convertible notes remained active and continued to improve following Monday’s news the company would be acquired by Take-Two Interactive Software Inc.

Peloton Interactive Inc.’s 0% convertible notes due 2026 were active although little changed on an outright basis.

Lumentum Holdings Inc.’s 0.5% convertible notes due 2026 were changing hands as holders cashed in after a strong run.

Zynga gains continue

Zynga’s convertible notes continued to improve in high-volume activity on Tuesday following Monday’s news that Take-Two would acquire the company.

The 0% convertible notes due 2026 rose another 1.5 points outright.

They were changing hands just north of 102.125 in the late afternoon.

There was $21 million in reported volume.

Zynga’s 0.25% convertible notes due 2024 gained about 3 points outright.

They were changing hands at 119.25 in the late afternoon with about $8 million in reported volume.

News broke on Monday that Zynga would be acquired by video game holding company Take-Two in a cash and stock deal.

Zynga shareholders will receive $3.50 in cash and $6.36 in Take-Two stock in the transaction.

The convertible notes will be taken out in the transaction.

While the amount to be paid in cash is fixed, the amount to be paid in Take-Two stock is variable.

Take-Two’s stock improved alongside broader markets on Tuesday, closing the day at $148.42, an increase of 3.8%.

Peloton active

Peloton’s 0% convertible notes due 2026 were active on Tuesday as stock gained more than 5%.

However, the stock move did little to change the outright level of the busted convertible notes, which continued to trade on an 84-handle.

The 0% convertible notes were changing hands at 84.75 in the late afternoon with $14 million in reported volume.

The yield on the notes was about 4%.

Peloton’s stock traded to a low of $34.05 and a high of $37.68 before closing the day at $36.56, an increase of 6.37%.

However, the 0% convertible notes have long been in busted territory with the conversion premium on the notes over 500%.

While stock has fallen more than 75% since the exercise technology company priced the $1 billion offering at par in February 2021, the convertible notes have held up well at their bond floor.

Taking profits

Lumentum Holdings’ 0.5% convertible notes due 2026 were active on Tuesday as holders cashed in on profits.

The notes were changing hands at 124 versus an equity price of $106.19 early in the session, a source said.

They continued to gain as the session progressed and were trading at 126 versus a stock price of $108.05 in the late afternoon.

There was about $10 million in reported volume.

Lumentum’s stock traded to a high of $108.58 and a low of $105.10 before closing the day at $107.61, an increase of 1.43%.

The activity in the name was most likely the result of profit-taking, a source said.

In December, when the tech sector was taking a beating, Lumentum’s stock outperformed and rose more than 25%.

The 0.5% convertible notes gained more than 10 points outright over December as stock surged.

“They’ve definitely taken a run,” a source said.

With the market down over the past month, holders were most likely using it as an opportunity to lock in profits.

Mentioned in this article:

Lumentum Holdings Inc. Nasdaq: LITE

Peloton Interactive Inc. Nasdaq: PTON

Take-Two Interactive Software Inc. Nasdaq: TTWO

Zynga Inc. Nasdaq: ZNGA

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