Peloton convertible notes in focus on takeover speculation; Southwest Airlines active

By Abigail W. Adams

Portland, Me., Feb. 7 – It was a quiet start to the week in the convertibles secondary space with equities choppy as the 10-year Treasury yield again surpassed the 1.9% threshold.

While indexes saw a strong start to the day, the Dow Jones industrial average closed up 1 point, or 0%, the Nasdaq Composite closed down 0.58%, and the S&P 500 index closed down 0.37%.

Badly battered small cap stocks were the outperformers of Monday’s session with the Russell 2000 index in positive territory throughout the day. The index closed up 0.39%.

However, trading activity in the convertibles secondary space was muted.

There was $67 million on the tape about one hour into the session and $450 million heading into the market close.

Merger and acquisition activity and speculation prompted activity in some names.

Peloton Interactive Inc.’s 0% convertible notes due 2026 were in focus with the notes jumping on an outright basis following media reports that the company was being eyed as a takeover target.

Southwest Airlines Co.’s 1.25% convertibles due 2025 (Baa1/BBB) were also active although with little movement in price.

The airline industry saw some action on “M&A Monday” with Frontier Group Holdings Inc. announcing its acquisition of Spirit Airlines Inc.

However, Spirit Airlines’ 1% convertible notes due 2026 saw little activity following the news with the notes to remain outstanding following the cash and stock deal.

Peloton in focus

Peloton’s 0% convertible notes due 2026 were in focus on Monday and making large gains on an outright basis as takeover speculation circled the company.

The 0% convertible notes shot up almost 6 points outright.

They traded as high as 92 early in the session but came in as the session progressed.

The notes were changing hands at 89.75 in the late afternoon.

There was $18 million in reported volume.

Peloton’s stock traded to a high of $32.22 and a low of $27.91 before closing the day at $29.75, an increase of 20.93%.

However, the long-busted convertible notes largely trade outright. A potential change-of-control put was moving the notes, sources said.

Peloton’s stock skyrocketed as media reports swirled about a potential takeover of the company with reports on Monday that the company was interested in exploring potential offers.

The Wall Street Journal reported afterhours Friday that Amazon.com Inc. was considering making a bid for the company.

Nike Inc. has also expressed interest with analysts also pointing to Apple Inc. as a potential bidder.

“Everyone’s coming to the party,” a market source said. “It could be every one of them or none of them.”

While analysts have speculated the Peloton would be an attractive takeover target given the downturn in its equity, any potential deal may have a difficult time crossing regulatory hurdles, a source said.

Airline M&A

The airline industry was making headlines on M&A Monday following news Frontier Airlines has agreed to buy convertible issuer Spirit Airlines in a cash and stock deal valued at $6.6 billion.

While Spirit Airlines’ stock shot up 17%, the news did little to move the convertible notes.

Spirit’s 1% convertible notes due 2026 saw light volume following the news with only a handful of prints on the tape.

The notes, which closed the previous week on an 89-handle, saw an odd-lot print at 93.125 early in the session.

However, the notes stood poised to close the day at 91.625.

Spirit’s stock traded to a low of $24.03 and a high of $25.80 before closing the day at $25.46, an increase of 17.17%.

While the notes were improved slightly, Frontier’s takeover bid will not trigger a change-of-control put, which is why the notes were quiet following the news, a source said.

They were trading based on the implied credit of the combined companies.

The deal is expected to close in the second half of 2022; however, it faces a tough regulatory landscape.

While Spirit’s 1% convertible notes saw light volume, Southwest Airlines’ 1.25% convertibles due 2025 were active.

The 1.25% notes were on the rise on an outright basis. However, they were moving in line to slightly weaker dollar-neutral, a source said.

The 1.25% notes rose about 3 points outright with stock up 2%.

The notes were changing hands at 135.625 in the late afternoon.

There was about $13 million in reported volume.

Southwest’s stock traded to a high of $45.11 and a low of $43.92 before closing the day at $44.60, an increase of 2.15%.

Mentioned in this article:

Peloton Interactive Inc. Nasdaq: PTON

Southwest Airlines Co. NYSE: LUV

Spirit Airlines Inc. NYSE: SAVE

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.