Peloton convertibles gain on partnership; American Water improves; NIO notes active

By Abigail W. Adams

Portland, Me., Sept. 28 – While the convertibles primary market stood poised for a deal-less week, the secondary space remained active early Thursday with end-of-quarter cleanup and topical news driving volume.

Equity indexes wavered between gains and losses early in the session but saw a strong finish as the market digested the latest slew of macro data.

Treasuries were flat early but also closed the day strong after yields hit 52-week highs the previous session.

The market responded favorably to the latest gross domestic product report, which showed a large reduction in consumer spending.

The Dow Jones industrial average closed Thursday up 116 points, or 0.35%, the S&P 500 index closed up 0.59%, the Nasdaq Composite index closed up 0.83% and the Russell 2000 index closed up 0.87%.

With murmurs in the market about the large options expirations with negative gamma on Friday and the monthly personal consumption expenditure report, the Fed’s preferred inflation gauge, due out pre-open, sources expect a volatile session on Friday.

There was $82 million in reported convertible bond trading volume about one hour into Thursday’s session and $525 million about one hour before the market close.

NextEra Energy Partners LP’s convertible notes remained active and continued to improve on hedge.

American Water Capital Corp.’s 3.625% exchangeable senior notes due 2026 (Baa1/A) were flat outright but improved on swap with interest rate hedges on the name paying off.

Peloton Interactive Inc.’s 0% convertible notes due 2026 soared following news of a new partnership with Lululemon.

NIO Inc.’s recently priced convertible notes returned to focus with the notes gaining outright as equity shot higher following rumors of a potential investment from Mercedes Benz Group AG.

Up on swap

NextEra’s convertible notes continued to fall outright but improve on hedge after the large expansion of the previous session following the company’s projected dividend cut.

NextEra’s 0% convertible notes due 2025 were off another 1.5 points outright.

They were changing hands at 83.875 versus a stock price of $30.76 in the late afternoon.

There was $28 million in reported volume.

NextEra’s 2.5% convertible notes due 2026 also fell 1.5 points outright to trade at 85.375 versus a stock price of $30.58 in the late afternoon.

There was $6 million in reported volume.

Both tranches continued to improve on swap after the large expansion of the previous session.

NextEra’s stock traded to a high of $37.31 and a low of $29.88 before closing the day at $30.54, a decrease of 18.52%.

NextEra’s convertible notes have been active since the company slashed its growth expectations for dividends.

Investment-grade issues from utility companies were stronger on hedge on Thursday with investors expecting more dividend cuts from the sector.

American Water’s 3.625% exchangeable notes due 2026 were a case in point with the notes flat outright but up on swap in heavy volume on Thursday.

The 3.625% convertible notes were largely unchanged outright with stock down more than 2%.

They were trading at 96.5 versus a stock price of $124.32 in the late afternoon.

The notes expanded 0.375 point dollar-neutral, a source said.

There was $31 million in reported volume.

American Water’s stock traded to a low of $123.04 and a high of $126.86 before closing at $123.58, a decrease of 2.18%.

Peloton soars

Peloton’s 0% convertible notes due 2026 were in focus on Thursday with the notes soaring after the company announced a new partnership with Lululemon.

The 0% notes gained more than 3 points outright.

The notes were trading at 76.25 with a yield of 11.75% early in the session, according to a market source. They came in slightly to trade at 75.625 with a yield of 12.125% in the late afternoon.

There was $27 million in reported volume.

The notes were trading on a 72-handle on Wednesday.

The heavily busted convertible notes have long traded for their yield.

However, Peloton’s stock closed Thursday at $4.90, an increase of 5.38%.

Peloton and Lululemon announced post-close Wednesday a strategic partnership with Peloton to provide content for Lululemon’s exercise app and Lululemon to be Peloton’s primary apparel partner.

NIO active

NIO’s recently priced convertible notes were again active on Thursday as the EV maker’s equity popped following market rumors Mercedes was considering taking a stake in the company.

The 3.875% convertible notes due 2029 gained 3 points outright with stock up 5%.

They were changing hands at 102.5 versus an equity price of $8.90 in the late afternoon.

There was $13 million in reported volume.

The 4.625% convertible notes due 2030 were up 3.5 points outright.

The notes were seen at 103.375 versus an equity price of $8.94.

There was $10 million in reported volume.

The notes were moving in line to slightly stronger on hedge, a source said.

NIO’s American Depositary Shares traded to a low of $8.36 and a high of $8.99 before closing at $8.91, an increase of 5.32%.

Equity made large gains on Thursday following reports Mercedes was considering taking a stake in the company.

NIO’s ADSs have seen a volatile week with media reports the company was exploring a $3 billion capital raise resulting in heavy selling on Monday.

While Bloomberg reported the company has approached investors from the Middle East with a potential transaction to occur in 2024, NIO has refuted the report stating the company is engaging in no reportable capital raising activity.

NIO’s ADSs have since eliminated their losses and are currently up 1.95% on the week.

Mentioned in this article:

American Water Works Co., Inc. NYSE: AWK

NextEra Energy Partners LP NYSE: NEP

NIO Inc. Nasdaq: NIO

Peloton Interactive Inc. Nasdaq: PTON

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