Twitter convertibles unchanged despite lower shares; lower-premium names in focus

By Rebecca Melvin

New York, Jan. 8 – Twitter Inc.’s convertibles were unchanged on Friday despite shares sinking to all-time lows below $20.00 per share.

Shares have been getting pummeled, a New York-based trader said about trading of Twitter stock this week. But the weakness didn’t follow through into convertibles.

“Of the trades that have gone up, they have been in line with swap moves, the trader said, adding that the convertibles had been relatively inactive.

Twitter shares peaked at $23.00 per share this past week and traded as low as $19.60 on Friday before paring losses to close at $19.98.

Twitter’s 0.25% convertible due 2019, or the A tranche, was quoted at 83.875 bid, 84.375 offered versus an underlying share price of $19.80.

Twitter’s 1% convertible due 2021, or the B tranche, was 81.875 bid, 82.375 offered versus the same $19.80 share price, a trader said.

As for what was generating the weakness in the shares, a second New York-based trader said, “Twitter is on the list of most-hated stocks.”

FireEye Inc. was also on the radar of convertibles traders. “FireEye keeps making new lows and has been better to buy with the stock down here,” a New York-based trader said, noting that shares notched a 52-week low on Friday, closing at $18.32.

Elsewhere, trading was focused on lower-premium names like Lam Research Corp. and Microchip Technology Inc., a New York-based trader said.

“These are put trades, and there are buyers because people are looking for protection if the market continues to crater,” the trader said.

Another trader concurred that he thought things were going lower before they got better, and believed that it would be a sharper downturn than the one experienced in August.

Part of it is that equities are catching up to credit, after high-yield traded sharply lower at the end of last year, he said.

Overall the convertibles market was called unchanged on Friday but firmer on the week, with the equity markets ending the week on a downbeat. The Dow Jones industrial average put in another 1% loss for the day, falling 167.65 points to 16,346.45 and posting a 6.2% loss for the first week of 2016. The S&P 500 stock index dropped another 21.06 points, or 1.1%, on Friday, closing at 1,922.03 and down about 6% on the week. Meanwhile, Nasdaq stock market lost 45.79 points, or 1%, on Friday, ending the week at 4,643.63, which represented a 7.3% drop for the week.

The downward pressure continued despite the Labor Department’s better-than-expected December nonfarm payrolls report, which saw an increase of 292,000 in payrolls. Estimates had put the payrolls growth at 210,000 jobs. Meanwhile, the unemployment rate remained unchanged at 5%, which was a tick higher than the 4.9% unemployment rate expected.

The whole week was a washout for equities, which dropped on Monday after weak data from China caused a sell-off in Asia equities. On Wednesday, the People’s Bank of China intervened to devalue the yuan for the second time in the week, stoking fears again that China’s economic growth prospects may be worse than expected.

Stock selling accelerated Wednesday afternoon after the Federal Reserve minutes from the last policy meeting revealed that December’s lift off on rates was taken despite lingering worries about low inflation.

SunEdison Inc.’s convertibles were lower even though the underlying shares stabilized from a 40% rout on Thursday. The drop in shares occurred on the heels of the company’s announcement Thursday that it raised $725 million of second-lien secured term loans and entered into exchange transactions resulting in $738 million in debt reduction.

The total net recourse debt was reduced by $300 million and the convertible preferred equity was reduced by $158 million. Fully diluted shares outstanding were increased by 69 million shares, implying a 17% dilution, according to SunEdison’s transaction summary.

SunEdison’s 2% convertibles due 2018 dropped to 41.6 from about 45 on Thursday and from 56 on Wednesday. SunEdison 0.25% convertible senior notes due 2020 fell to about 33 from 37. And SunEdison’s 2.75% convertibles due 2021 crossed the Trace tape at 39.5, which was down from 54 previously.

It was “very expensive and dilutive financing that was great for the participants [of the exchange], but not so much for everyone else,” a New York-based trader said.

Mentioned in this article:

FireEye Inc. Nasdaq: FEYE

Lam Research Corp. Nasdaq: LRCX

Microchip Technology Inc. Nasdaq: MCHP

SunEdison Inc. Nasdaq: SUNE

Twitter Inc. Nasdaq: TWTR

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