RingCentral convertible notes active on buyback; Splunk paper jumps on earnings

By Abigail W. Adams

Portland, Me., Aug. 24 – The convertibles secondary space remained active on Thursday with buybacks and earnings-related news sparking activity in outstanding issues as the market enters into the dog days of summer.

Equity indexes were mixed at the opening but sank into negative territory as the session progressed with indexes giving back the gains made from the previous session.

The Dow Jones industrial average closed Thursday down 374 points, or 1.08%, the S&P 500 index closed down 1.35%, the Nasdaq Composite index closed down 1.87% and the Russell 2000 index closed down 1.14%.

There was $93 million in reported volume about one hour into the session and $450 million on the tape about one hour before the market close.

RingCentral Inc.’s buyback of its 0% convertible notes due 2025 and 0% convertible notes due 2026 was a large contributor to the recorded volume during Thursday’s session.

Splunk Inc.’s 1.125% convertible notes due 2025 were among the most actively traded issues in the space with the notes making large gains on the heels of a better-than-expected earnings report.

Outside of RingCentral’s and Splunk’s convertible notes, activity remained concentrated in investment-grade issues with Duke Energy Corp.’s 4.125% convertible notes due 2026 (Baa2/BBB) and American Water Capital Corp.’s 3.625% exchangeable senior notes due 2026 (Baa1/A) seeing the heaviest volume of Thursday’s session.

RingCentral buyback

RingCentral’s convertible notes were active as the company executed the buyback planned with proceeds from its debut high-yield bond issuance.

RingCentral announced Thursday that it had entered into privately negotiated transactions to repurchase $130 million in principal of its 0% convertible notes due 2025 for $122 million and $41 million in principal of its 0% convertible notes due 2026 for $35 million in cash.

The buyback price for the 0% convertible notes due 2025 was 94; the price for the 0% convertible notes due 2026 was 85.5, according to a market source.

The 0% convertible notes due 2025 were trading around 92 but bumped up to 93 after RingCentral announced its high-yield offering in early August.

The 0% convertible notes due 2026 were trading on an 83-handle heading into Thursday’s session with little movement in price after the refinancing deal was announced.

The convertible note repurchases were funded with proceeds from RingCentral’s $400 million issue of 8.5% senior notes due 2030 (B1/BB/BB), the company’s first capital raise in the high-yield market.

RingCentral has been on an ongoing campaign to retire its 0% convertible notes due 2025 with the company repurchasing $461 million of the initial $1 billion issue for $425 million in cash in May.

However, the decision to issue straight debt with an 8-handle to take out notes with a 0% coupon left many market players scratching their heads.

Splunk’s earnings

Splunk’s 1.125% convertible notes due 2025 were making large gains in heavy volume as stock popped double digits on the heels of a better-than-expected earnings report.

The notes jumped 4.5 points outright with stock up about 13% with the notes topping par for the first time since mid-July.

The 1.125% notes were changing hands at 101.625 versus a stock price of $112.52 early in the session, according to a market source.

They were seen at 101.75 in the late afternoon.

There was $16 million in reported volume.

Splunk’s stock traded to a low of $110.15 and a high of $114.60 before closing at $112.83, an increase of 12.91%.

The software company posted a large earnings beat post-close on Wednesday with earnings per share of 71 cents versus analyst expectations for earnings of 47 cents and revenue of $910.5 million versus analyst expectations for revenue of $888.5 million.

IG trades

While topical and earnings-related news continued to move some outstanding issues in the market, activity remained concentrated in investment-grade issues.

Duke Energy’s 4.125% convertible notes due 2026 were active although with little movement in price.

The notes were trading at 97.875 versus a stock price of $90.84 in the late afternoon, according to a market source.

There was $19 million on the tape.

Duke’s stock traded to a low of $89.86 and a high of $91.36 before closing at $90, off 0.38%.

American Water’s 3.625% exchangeable notes were trading at 99.375 versus a stock price of $138.25 in the late afternoon.

There was $17 million in reported volume.

American Water’s stock traded to a low of $137.86 and a high of $140.90 before closing at $138.28, a decrease of 0.87%.

Mentioned in this article:

American Water Works Co., Inc. NYSE: AWK

Duke Energy Corp. NYSE: DUK

RingCentral Inc. NYSE: RNG

Splunk Inc. Nasdaq: SPLK

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