Convertibles secondary ‘sloppy’; airlines under pressure; Enphase convertibles mixed

By Abigail W. Adams

Portland, Me., Oct. 27 – The convertibles secondary space ended the week on soft footing as markets digested mixed earnings and the latest piece of inflationary data.

Treasuries were flat and equity indexes mixed following September’s Personal Consumption Expenditure report, which came largely in line with expectations.

The Dow Jones industrial average closed Friday down 367 points, or 1.12%, the S&P 500 index closed down 0.48%, the Nasdaq Composite index closed up 0.38% and the Russell 2000 index closed down 1.21%.

Trading activity was light with $328 million on the tape about one hour before the market close.

However, the market was “sloppy,” a source said. “Things are gappy. There’s no place to hide.”

Airlines continued to see heavy selling with lackluster earnings, slowing travel demand, and high oil prices pressuring the sector.

Spirit Airlines Inc.’s 1% convertible notes due 2026 continued to fall in active trade with the notes seeing a large contraction on the week.

Southwest Airlines Co.’s 1.25% convertibles due 2025 (Baa1/BBB) held up better than its industry peers although the notes were also lower in heavy volume.

The solar sector also continued to take a hit post-earnings with Enphase Energy Inc.’s convertible notes mixed in active trade as stock plunged double digits to a new 52-week low.

Airlines sink

The convertible notes of airlines continued to get pummeled on Friday with large sellers in the market.

Spirit Airlines’ 1% convertible notes due 2026 continued their downtrend after reporting lackluster earnings earlier in the week.

The 1% convertible notes sank another 3 points outright in active trade.

The notes were changing hands at 72.25 in the late afternoon with the yield about 14.375%.

Spirit’s stock traded to a high of $15.98 and a low of $14.69 before closing at $14.69, a decrease of 8.24%.

Spirit has seen heavy selling pressure throughout the week with earnings accelerating the destruction in the name.

The 1% notes have contracted 4 to 5 points on the week, a source said.

While Spirit beat earnings expectations, weak demand and pressure from discounted tickets sparked a flight from the credit.

Southwest Airlines’ 1.25% convertible notes due 2025 were holding up better than some of its industry peers due to their investment-grade status, a source said.

However, the notes were not immune to the selling pressure.

The 1.25% notes fell 1 point outright with stock off more than 4%.

They were trading at 96.625 in the late afternoon.

There was $25 million in reported volume.

Southwest Airlines’ stock traded to a low of $22.22 and a high of $23.33 before closing at $22.34, off 4.53%.

Enphase mixed

Enphase’s convertible notes were mixed as stock plunged double digits on the heels of mixed earnings and disappointing guidance.

Enphase’s 0% convertible notes due 2028 dropped 2.5 points outright to trade at 74.75 early in the session, according to a market source.

While down outright, the notes were unchanged on hedge, a source said.

However, Enphase Energy’s shorter-duration 0% convertible notes due 2026 improved dollar-neutral.

The notes were largely unchanged with the notes continuing to trade around 85.5.

The notes expanded about 0.25 point dollar-neutral, a source said.

Enphase’s stock traded to a new 52-week low of $79.96 and a high of $84.85 before closing at $82.09, a decrease of 14.65%.

Stock fell after the solar energy company reported mixed earnings with the company missing on the top line but beating on the bottom.

Enphase reported earnings per share of $1.02 versus expectations for earnings per share of $1.00.

Revenue was $551 million versus the $566.8 million expected.

However, the sell-off was sparked by weak guidance with sales figures further warning of a slowdown in the sector.

While Enphase’s convertible notes were mixed on Friday, they have been on a strong downtrend since industry peer SolarEdge Technologies Inc. slashed its revenue forecasts and warned about slowing demand last Friday.

Enphase’s 0% convertible notes due 2028 and 0% convertible notes due 2026 have fallen 5.5 points and 2 points outright since SolarEdge’s warnings.

Mentioned in this article:

Enphase Energy Inc. Nasdaq: ENPH

Southwest Airlines Co. NYSE: LUV

Spirit Airlines Inc. NYSE: SAVE

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