Convertibles activity muted; Cleveland-Cliffs contracts post-earnings; Citrix active

By Abigail W. Adams

Portland, Me., Oct. 19 – Trading activity in the convertibles secondary space was muted on Friday with many calling an early start to the weekend.

Cleveland-Cliffs Inc.’s 1.5% convertible notes due 2025 were the focus of trading activity on Friday after the mining company announced third-quarter earnings prior to the market open.

The notes were dropping on an outright and dollar-neutral basis as stock traded down, a move fueled by a drama-filled conference call where the CEO lashed out at analysts.

The stock and convertible notes movement was largely an overreaction, a market source said.

Citrix Systems Inc.’s 0.5% convertible notes due April 15, 2019 also saw some high-volume activity on Friday.

The tech sector continued to get hammered on Friday with the tech heavy Nasdaq closing the day down 36 points, or 0.48%, and the Philadelphia Stock Exchange semiconductor sector closing the day down 19 points, or 1.55%.

However, tech convertibles continued to hold with credit unaffected.

“It’s good for vol.,” a market source said. “I wouldn’t be surprised if tech improves come Monday when more people are in.”

Dermira Inc.’s 3% convertible notes due 2022 also saw some activity with the notes seeing gains on an outright basis with stock on the rise.

However, Tilray Inc.’s 5% convertible notes due 2023 continued to drop on an outright basis as stock continued its decline.

Evolent Health, Inc.’s new 1.5% convertible notes due 2025 were not active on Friday.

The notes dominated activity during Thursday’s session and were expanded at least 1 point on a dollar-neutral, or hedged, basis.

“I guess everything that needed to get done got done,” a market source said.

CLF contracts

Cleveland-Cliffs’ 1.5% convertible notes were the focus of trading activity on Friday with the notes dropping on an outright and dollar-neutral basis as stock traded down.

However, sources said the reaction was overdone and that the fundamentals of the company are strong.

The 1.5% notes dropped more than 10 points outright with the notes wrapped around 143.25 in active trading.

They were contracted about 0.5 point dollar-neutral, a market source said.

The notes were better to buy at the launch of the quarter but gave back some of their gains as the quarter came to a close, the source said.

Cleveland-Cliffs stock was down as much as 10% during Friday’s session. Stock traded to a low of $10.32 and a high of $11.70 before closing the day at $11.05, a decrease of 3.75%.

Cleveland-Cliffs reported a slight earnings miss in the third quarter with earnings per share from continued operations 64 cents with the consensus estimate for earnings per share of 67 cents.

Cleveland-Cliffs also announced it was reintroducing dividends and would pay 5 cents a share to shareholders of record through Jan. 4, 2019.

Despite the dividend, the stock was down at the open and spiraled further downward after a drama-filled conference call that rivaled CEO Elon Musk’s exchange with analysts on Tesla’s first-quarter conference call.

Cleveland-Cliffs CEO Lourenco Goncalves reportedly personally attacked a Goldman Sachs analyst, which he later told Bloomberg was due to their predictions about iron ore prices.

While stock traded down, it was largely an overreaction, a market source said.

Citrix active

Citrix’s 0.5% convertible notes due April 15, 2019 saw high-volume trading on Friday with the equity volatile alongside the broader tech sector.

The convertible notes saw a few large $5 million trades at 143.25 early in the session although activity in the notes quieted into the afternoon, a market source said.

The software company’s stock spiked early in the session, trading as high as $105.00, but quickly dropped alongside the broader tech sector as the session progressed.

Citrix stock closed the day at $100.70, a decrease of 2.63%.

The 0.5% notes are a large liquid issue that is oftentimes active even when the rest of the secondary space is quiet, a market source said.

Dermira gains

Dermira’s 3% convertible notes due 2022 also saw some activity on a day with light trading volume. The notes were up about 2 points outright to trade up to 86 during Friday’s session.

Dermira stock rose as much as 8% in intraday trading but gave back some early gains to close the day at $13.08, an increase of 2.35%.

Dermira’s product Qbrexza to treat excessive underarm sweating became available for retail sale in early October.

Dermira was the subject of a Fundamental Markets research report on the company’s fundamentals, which was released earlier in the week.

Tilray sinks

After a rebound on Monday, Tilray’s 5% convertible notes due 2023 closed the week at levels lower than last week’s closing price.

The 5% convertible notes dropped 4 points outright to close Friday at 93.5, according to Trace data. Tilray stock closed Friday at $145.30, a decrease of 4.74%.

The notes traded as high as 104 on Tuesday but held largely at 101 despite some large stock swings.

The notes dropped back below par on Wednesday and Thursday with trades around 97.75.

Tilray stock has been on the decline since Tuesday alongside the broader cannabis market with Canada’s legalization of marijuana on Wednesday not the boon for the sector some had hoped.

Sources attributed the trading activity earlier in the week to underwriters exercising the greenshoe.

Mentioned in this article:

Citrix Systems Inc. Nasdaq: CTXS

Cleveland-Cliffs Inc. NYSE: CLF

Dermira Inc. Nasdaq: DERM

Evolent Health, Inc. NYSE: EVH

Tilray Inc. Nasdaq: TLRY

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