Wayfair convertibles down outright; Southwest Airlines, Royal Caribbean notes active

By Abigail W. Adams

Portland, Me., Aug. 31 – The convertibles secondary space launched the week quietly with $41 million in reported volume about one hour into the session and $312 million about one hour before the market close.

With not much activity expected from the primary market leading up to the Labor Day holiday, sources were expecting the slow pace to extend for the remainder of the week.

End-of-month activity was the driving force of activity in the space, a source said.

Wayfair Inc.’s convertible notes were active. While the notes were trading down outright as stock sold off, they were improved dollar-neutral.

Southwest Airlines Co.’s 1.25% convertible notes due 2025 also continued to be major volume movers in the secondary space.

Royal Caribbean Cruises Ltd.’s 4.25% convertibles due 2023 were also active although little changed in the end-of-month activity.

While unchanged dollar-neutral, K12 Inc.’s 1.125% convertible notes due 2027 popped back above par after sinking below in the previous session.

Wayfair down outright

Wayfair’s convertible notes were in focus as stock traded off on Monday.

The 0.625% convertible notes due 2025 were down about 4 points outright with stock off between 4% and 6%.

The recently priced convertibles were changing hands around 102.25 early in the session and 102 in the late afternoon.

While down outright, the notes were nominally improved dollar-neutral, a source said.

With more than $18 million in reported volume by the late afternoon, the 0.625% notes were the most actively traded in the secondary space.

Wayfair priced a $1.52 billion issue of the 0.625% convertible notes in mid-August. It was the largest deal of the month.

Wayfair’s deep-in-the-money 1% convertible notes due 2026 dropped 15 points outright to 214.25.

However, the notes were largely moving in line with stock.

The bonds saw almost $12 million in reported volume heading into the market close.

Wayfair’s stock traded to a high of $311.46 and a low of $287.31 before closing the day at $296.56, a decrease of 4.62%.

The drop in stock was most likely the result of end-of-month selling, a source said.

Active

The convertible notes of airlines and cruise lines were once again at the top of the volume charts on Monday.

However, portfolio adjustments not headlines were the major catalyst to the trading activity.

Southwest Airlines’ 1.25% convertible notes due 2025 again saw high-volume activity although the notes were little changed.

The 1.25% convertible notes were changing hands around 134 early in the session.

They dropped to 133 in the late afternoon with stock off about 1%.

The bonds saw more than $16 million in reported volume.

Southwest’s stock traded to a high of $38.81 before closing the day at the low of $37.58, a decrease of 3.17%.

Royal Caribbean’s 4.25% convertible notes due 2023 were again major volume movers.

The 4.25% notes were down about 2 points outright to 121.625 with stock off during Monday’s session.

The bonds saw about $13 million in reported volume.

Royal Caribbean’s stock traded to a high of $71.55 and a low of $68.20 before closing the day at $68.84, a decrease of 1.87%.

Above par

K12’s 1.125% convertible notes due 2027 popped back above par on Monday after sinking below the previous session.

The notes rose as high as 101 as stock recovered from the beating taken since the convertible notes offering was announced last week.

While the notes gained outright, they were largely unchanged dollar-neutral.

K12 stock traded to a high of $38.00 and a low of $36.70 before closing the day at $37.21, an increase of 1.85%.

Mentioned in this article:

K12 Inc. NYSE: LRN

Royal Caribbean Cruises Ltd. NYSE: RCL

Southwest Airlines Co. NYSE: LUV

Wayfair Inc. NYSE: W

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