High-grade convertible notes in focus; PG&E active; MicroStrategy trades lower

By Abigail W. Adams

Portland, Me., Jan. 3 – While off to a slow start, the convertibles secondary space saw an active session on Wednesday with accounts putting money to work despite a soft tone to the market.

Equity indexes continued to pull back from the late year rally of 2023 with the release of the Fed minute notes dampening optimism about imminent rate cuts.

“Rates may have peaked but they’re not ready to cut yet,” a source said.

The Dow Jones industrial average closed Wednesday down 176 points, or 0.47%, the S&P 500 index closed down 0.51%, the Nasdaq Composite index closed down 0.86% and the Russell 2000 index closed down 1.57%.

There was $54 million in reported volume about one hour into the session and $557 million on the tape about one hour before the market close with investment-grade issues dominating the tape.

Evergy Inc.’s 4.5% convertible notes due 2027 (Baa2/BBB), Duke Energy Corp.’s 4.125% convertible notes due 2026 (Baa2/BBB), PPL Corp.’s 2.875% exchangeable notes due 2028 (Baa1/BBB+) and Ares Capital Corp.’s soon-to-mature 4.625% convertible notes due March 1, 2024 (Baa3/BBB-) accounted for more than one-quarter of the total recorded volume in the space.

PG&E Corp.’s 4.25% secured convertible notes due 2027 were also active with the notes lower alongside stock.

While buyers were active on Wednesday, some of the late year winners of 2023 were reversing course and giving back some gains alongside the broader market.

MicroStrategy Inc.’s convertible notes continued to come in after netting triple digit returns in 2023.

High-grade trades

High-grade names continued to drive volume on a relatively active day in the secondary space with accounts putting money to work in the new year.

Evergy’s 4.5% convertible notes due 2027 saw heavy volume although with little movement in price.

The notes were trading at 103.5 versus a stock price of $53.58 in the late afternoon, according to a market source.

There was $65 million in reported volume.

Evergy’s stock traded to a low of $53.03 and a high of $54.05 before closing at $53.87, up 0.82%.

Evergy’s convertible notes will be added to the Refinitiv convertible indices on Jan. 11.

Duke Energy’s 4.125% convertible notes due 2026 were also largely unchanged in active trade.

The notes were changing hands at 100.375 early in the session and were seen at 100.5 versus a stock price of $98.61 in the late afternoon.

There was $42 million in reported volume.

Duke Energy’s stock traded to a low of $97.50 and a high of $98.88 before closing at $98.78, up 0.99%.

PPL’s 2.875% convertible notes due 2028 remained among the worst performers of the investment-grade issues to come to market in 2023.

The notes continued to trade below par.

They were marked at 97.375 versus a stock price of $27.62 in the late afternoon.

There was $21 million in reported volume.

PPL’s stock traded to a low of $27.41 and a high of $27.72 before closing at $27.66, up 0.55%.

Ares’ soon-to-mature 4.625% convertible notes due March 1, 2024 also saw a fresh round of activity.

The 4.625% convertible notes were wrapped around 103 versus a stock price of $20.03 in the late afternoon.

The notes were trading at about parity, a source said.

There was $18 million in reported volume.

Ares’ stock traded to a low of $19.87 and a high of $20.08 before closing flat at $20.03.

Ares announced on Wednesday that it would report fourth-quarter earnings on Feb. 7.

PG&E active

PG&E’s 4.25% convertible notes due 2027 also saw heavy volume on Wednesday although with little movement in price.

The notes were trading just north of 104.75 versus a stock price of $17.99 early in the session.

They were marked at 104.5 in the late afternoon.

There was $17 million in reported volume.

PG&E’s stock traded to a low of $17.84 and a high of $18.13 before closing at $17.97, off 0.44%.

The convertible notes are slated to join the Refinitiv convertible indices at the monthly rebalancing on Jan. 11.

MicroStrategy declines

MicroStrategy’s convertible notes gave back some gains in active trading on Wednesday after the spectacular returns of the previous year.

The deep-in-the-money 0.75% convertible notes due 2025 sank 13 points outright with stock off about 8%.

The notes were trading at 167 versus a stock price of $631.65 in the late afternoon, according to a market source.

There was $11 million in reported volume.

MicroStrategy’s 0% convertible notes due 2027 fell 2 points outright.

The notes were trading at 86.25 versus a stock price of $634.57 in the late afternoon.

There was $9 million in reported volume.

MicroStrategy stock traded to a low of $625.30 and a high of $658.55 before closing at $631.06, a decrease of 7.89%.

MicroStrategy’s convertible notes were outperformers in 2023 with the Bitcoin bulls returning as an array of institutional investors prepped Bitcoin ETFs.

MicroStrategy’s stock shot up more than 300% in 2023 with its 0.75% convertible notes due 2025 and its 0% convertible notes due 2027 netting outright returns of 232% and 125%, respectively.

Mentioned in this article:

Evergy Inc. Nasdaq: EVRG

MicroStrategy Inc. Nasdaq: MSTR

PG&E Corp. NYSE: PCG

PPL Corp. NYSE: PPL

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