High-grade convertibles dominate; Cryoport improves as stock tanks; Western Asset gains

By Abigail W. Adams

Portland, Me., July 13 – The convertibles secondary space remained firm in active trade on Thursday as equities and Treasuries added to their gains from the previous session.

The Dow Jones industrial average closed Thursday up 48 points, or 0.14%, the S&P 500 index closed up 0.85%, the Nasdaq Composite index closed up 1.58% and the Russell 2000 index closed up 0.94%.

Treasury yields continued their steep descent with the two-year yield falling 10 basis points to 4.649% and the 10-year yield falling 9.4 bps to 1.768% at the market close.

There was $74 million in reported convertibles trading volume about one hour into the session and $552 million on the tape in the late afternoon with investment-grade issues accounting for the lion’s share of activity in the space.

Southern Co.’s 3.875% convertible notes due 2025 (Baa2/BBB), Duke Energy Corp.’s 4.125% convertible notes due 2026 (Baa2/BBB) and Alliant Energy Corp.’s 3.875% convertible notes due 2026 (BBB+) were the top traded names in the space with the notes gaining outright but their performance on hedge questionable.

Topical news also cast the spotlight on some small, illiquid issues that rarely trade in volume.

Cryoport Inc.’s 0.75% convertible notes due 2026 was active with the notes improving dollar-neutral as stock tanked on preliminary earnings results and downwardly revised guidance.

Western Asset Mortgage Capital Corp.’s 6.75% senior notes due Sept. 15, 2024 also saw some action with the notes trading at their highest level in over one year after a takeover offer.

High-grade gains

High-grade names were in focus on Thursday as Treasuries continued to rally bringing yields down to their lowest level of the month.

Southern Co.’s 3.875% convertible notes due 2025 saw the heaviest volume of the session.

The notes were changing hands at 100.375 versus a stock price of $71.15 in the late afternoon.

There was $48 million in reported volume.

Southern Co.’s stock traded to a low of $71.05 and a high of $71.75 before closing at $71.48, off 0.15%.

Duke’s 4.125% convertible notes due 2026 gained 0.5 point outright.

The notes were trading at 99 versus a stock price of $92.85 in the late afternoon.

There was $27 million in reported volume.

Duke’s stock traded to a low of $91.82 before closing at the intraday high of $93.31, an increase of 1.03%.

Alliant’s 3.875% convertible notes due 2026 gained 1 point outright to pop back above par.

The notes were seen at 100.75 versus a stock price of $54.04 in the late afternoon.

There was $23 million in reported volume.

Alliant’s stock traded between $53.70 and $54.32 before closing at $54.28, up 0.80%.

While investment-grade convertible notes have gained outright amid the rally in equities and Treasuries, hedge players may not be faring so well, especially those using credit hedges, a source said.

“They’re losing money with hedges on rate bets,” a source said.

Cryoport up on hedge

Cryoport’s 0.75% convertible notes due 2026, a small, illiquid issue that rarely trades in volume, was one of the top traded names on Thursday as stock tanked following a preliminary earnings release and downwardly revised guidance.

The 0.75% notes were changing hands at 78 versus a stock price of $14.44 early in the session, according to a market source.

The notes traded at 78.52 versus a stock price of $14.15 in the late afternoon. The yield was 8.125%.

The notes expanded 2 points dollar-neutral on the move, a source said.

The convertibles trade on a light delta of about 40%.

There was $12 million in reported volume.

Cryoport’s stock traded down to a 52-week low of $13.89 and a high of $14.89 before closing at $14.60, a decrease of 24.74%.

The provider of products and services to the cell and gene therapy industry announced pre-open that second-quarter revenue would be $56.5 million to $57.5 million, a significant decrease from previous guidance.

The company also downwardly revised its full-year revenue guidance and is now expecting revenue of $233 million to $243 million.

Cryoport’s 0.75% notes last traded at 80 in mid-June, according to Trace data.

Western Asset propositioned

Western Asset’s short-duration 6.75% convertible notes due Sept. 15, 2024 made large gains in active trade on Thursday after receiving a takeover proposal.

The 6.75% convertible notes added 2 points outright.

The notes were trading at 92.25 versus a stock price of $8.92 in the late afternoon, according to a market source. They yield was about 14.125%.

There was $6 million in reported volume.

Western Asset’s stock traded to a low of $8.61 and a high of $9.06 before closing at $9.04, an increase of 7.24%.

Western Asset’s convertible notes and stock jumped after AG Mortgage Investment Trust submitted a cash-and-stock buyout offer to counter the previously announced merger of Western Asset and Terra Property Trust Inc.

AG Mortgage is offering 1.468 shares, which has an implied value of $8.90, and a cash payment of 98 cents for each Western Asset share.

Western Asset’s $75 million issue of 6.75% convertible notes would not be subject to accelerated payment, according to a company press release.

Western Asset and Terra Property Trust announced they had entered into a merger agreement on June 28 with Western Asset to issue newly created class B common shares to Terra stockholders based on an exchange ratio determined by the book value of shares.

Mentioned in this article:

Alliant Energy Corp. Nasdaq: LNT

Cryoport Inc. Nasdaq: CYRX

Duke Energy Corp. NYSE: DUK

Southern Co. NYSE: SO

Western Asset Mortgage Capital Corp. NYSE: WMC

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