One Medical convertible notes jump on Amazon buyout news; Airbnb paper active

By Abigail W. Adams

Portland, Me., July 21 – The convertibles primary market remained dormant on Thursday on a choppy day for equities as earnings continue to pour in.

With no deals launched after the market close, the convertibles primary market stands poised for another week with no new paper.

However, the lack of new issuance as equities rallied over the past week is no surprise with July a typically slow month for dealmaking and most convertible issuers in the midst of their earnings season blackout, a source said.

New deal activity is expected to pick up in the next week or two following earnings announcements.

However, activity is expected to remain muted with a lack of motivation to issue given the continued uncertainty in the market.

That uncertainty again reared its head in equities with indexes in the red early in the session only to extend their rally by the market close.

The Dow Jones industrial average closed Thursday up 162 points, or 0.51%, the S&P 500 index closed up 0.99%, the Nasdaq Composite index closed up 1.36% and the Russell 2000 index closed up 0.48%.

There was $90 million on the tape about one hour into the session and $500 million on the tape about one hour before the market close with investment-grade convertible notes continuing to dominate trading activity.

Southwest Airlines Co.’s 1.25% convertibles due 2025 (Baa1/BBB), Expedia Inc.’s 0% convertibles due 2026 (Baa3/BBB-/BBB-) and Western Digital Corp.’s 1.5% convertible notes due Feb. 1, 2024 (Baa3) collectively accounted for nearly one-fifth of the total reported volume in the secondary space.

However, 1Life Healthcare Inc.’s (One Medical) 3% convertible notes due 2025 were the largest movers in terms of price with the notes skyrocketing on an outright and dollar-neutral basis following news Amazon was buying out the health care technology company.

Airbnb Inc.’s 0% convertible notes due 2026 were active following news of a leadership shake-up although with little movement in price.

One Medical’s buyout

One Medical’s 3% convertible notes due 2025 were the major gainers of Thursday’s session with the notes skyrocketing on an outright and dollar-neutral basis following news Amazon was purchasing the medical technology company.

The 3% convertible notes jumped 11 points outright to trade on a 98-handle.

The notes expanded 7 points dollar-neutral on the move up, a source said.

There was $12 million in reported volume.

The small, illiquid issue rarely trades in round lots. However, the last large trade of the notes late last week was on an 88-handle, a source said.

One Medical’s stock skyrocketed on the buyout news.

Stock traded to a low of $16.90 and a high of $17.28 before closing the day at $17.25, an increase of 69.45%.

News broke prior to the market open on Thursday that Amazon would acquire One Medical for $18.00 per share, including debt with an enterprise value of $3.9 billion.

The notes will be taken out in the all-cash transactions, a source said.

However, the notes seemed to be trading rich at their current level.

“Because Amazon is the buyer it could take forever to close,” another source said.

IG convertibles trade

Investment-grade convertible notes continued to dominate the tape as they have for much of the past few weeks.

Southwest Airlines’ 1.25% convertibles due 2025 remained the most actively traded issue in the secondary space.

The notes were changing hands at 131.25 versus a stock price of $40.71 in the late afternoon, according to a market source.

There was $52 million in reported volume.

Southwest Airlines’ stock traded to a low of $40.10 and a high of $40.92 before closing the day at $40.89, a decrease of 1.46%.

The company’s convertible notes have dominated activity going on three weeks.

Hedge accounts that are playing the notes on different deltas are most likely passing the notes between each other, a source said.

Western Digital’s short-duration 1.5% convertible notes due Feb. 1, 2024 were also active as the notes move closer to their maturity.

The 1.5% notes continued to trade on a 95-handle with the yield just shy of 4.75%.

There was $11 million in reported volume.

The high-premium, short-duration notes have lost their call optionality and trade for their yield.

Expedia’s 0% convertible notes due 2026 were also active with the notes now trading on a 90-handle.

The notes were changing hands just shy of 90.5 versus an equity price of $101.76.

There was $10 million in reported volume.

Expedia’s stock traded to a low of $98.86 and a high of $102.44 before closing the day at $102.37, a decrease of 0.79%.

Investment-grade convertible notes have remained active even amid the thin liquidity of the past few weeks.

The trades were mostly liquidity trades with the investment-grade status of the notes making the activity a safer bet, a source said.

Airbnb active, flat

Airbnb’s 0% convertible notes due 2026 were active although with little movement in price following news the company’s cofounder will be stepping down.

The 0% convertible notes were seen at 86.25 versus a stock price of $107.04 in the late afternoon.

There was $12 million in reported volume.

Airbnb’s stock traded to a low of $104.41 and a high of $108.50 before closing the day at $108.14, an increase of 0.38%.

Mentioned in this article:

1Life Healthcare Inc. (One Medical) Nasdaq: ONEM

Airbnb Inc. Nasdaq: ABNB

Expedia Inc. Nasdaq: EXPE

Southwest Airlines Co. NYSE: LUV

Western Digital Corp. Nasdaq: WDC

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