Travel-related investment-grade convertibles in focus; DISH down again; Twitter drops

By Abigail W. Adams

Portland, Me., July 11 – The convertible secondary space saw another quiet start to the week with trading volume light as selling pressure returned to equity markets.

With the latest Consumer Price Index report set for release on Wednesday and second-quarter earnings season kicking off in the latter part of the week, a risk-off sentiment was again taking hold with Treasury yields coming in as risk assets sold off.

“They’re reversing the tape from last week,” a source said.

The Dow Jones industrial average closed Monday down 164 points or 0.52%, the S&P 500 index closed down 1.15%, the Nasdaq Composite index closed down 2.26% and the Russell 2000 index closed down 2.11%.

There was $30 million in reported trading volume about one hour into the session and $310 million on the tape about one hour before the market close.

Account repositioning and topical news were the driving forces of trading activity in the secondary space with travel-related investment-grade convertible notes dominating the tape.

Expedia Inc.’s 0% convertibles due 2026 (Baa3/BBB-/BBB-), Booking Holdings Inc.’s 0.75% convertible notes due 2025 (A3/A-) and Southwest Airlines Co.’s 1.25% convertibles due 2025 (Baa1/BBB) collectively accounted for nearly one-third of the total volume on the tape.

While the notes were active there was little movement in prices as market players assessed travel demand amid renewed Covid lockdowns in China and recession red flags.

DISH Network Corp.’s 3.375% convertible notes due 2026 (B2/CCC) also saw heavy volume with the notes resuming their downward trend as Elon Musk’s SpaceX Starlink and DISH spar over 5G airwaves.

Twitter Inc.’s convertible notes were among the largest losers of Monday’s session following news Elon Musk was attempting to terminate his $44 billion takeover of the social media company.

While down, the notes were surprisingly quiet with problems with the deal widely anticipated, a source said.

Travel names trade

Travel-related investment-grade convertible notes dominated trading activity in the secondary space although with little movement in prices as market players position themselves based on assessments of travel demand amid several headwinds.

Expedia’s 0% convertible notes due 2026 were down outright but moving inline dollar-neutral amid the heavy volume, a source said.

The 0% convertible notes fell 1 point outright.

They were changing hands at 88.875 versus a stock price of $91.14 in the late afternoon.

There was $33 million in reported volume.

Expedia’s stock traded to a low of $90.57 and a high of $94.07 before closing the day at $91.16, a decrease of 3.91%.

Booking Holdings’ 0.75% convertible notes due 2025 were down about 0.5 point outright but also largely unchanged dollar-neutral.

The 0.75% notes were changing hands at 131.5 versus a stock price of $1,732.36 in the late afternoon.

There was $22 million in reported volume.

Booking Holdings’ stock traded to a high of $1,754.43 and a low of $1,714 before closing the day at $1,724.55, a decrease of 2.54%.

While the convertible bond market did not show strong conviction, the online travel agent market has become more fragmented as a result of Google providing hotels the ability to list on their platform for free, according to a Wall Street Journal article that specifically highlighted Bookings and Expedia.

Southwest Airlines’ 1.25% convertible notes due 2025 continued to see heavy volume as they have for much of the last week.

The 1.25% convertible notes continued to trade in a tight range as stock continued to channel.

The notes traded between 119.5 and 121 on Monday as stock wavered between gains and losses.

There was $25 million in reported volume.

Southwest stock traded to a low of $36.22 and a high of $37.04 before closing the day at $36.83, an increase of 0.38%.

DISH weaker

DISH’s 3.375% convertible notes due 2026 remained under pressure in high-volume activity on Monday with the notes giving back some of their outright gains from the previous week.

The notes again broke below a 68-handle and were changing hands at in the 67.875 to 68.25 range throughout Monday’s session.

The yield on the notes was just shy of 14%.

While not equity-sensitive, DISH’s stock was also under pressure on Monday closing the day at $17.07, a decrease of 6.92%.

Since a strong downtrend in mid-June, the 3.375% notes have been bouncing of their all-time lows of 66 amid market rallies.

The notes traded as high as 69 on Friday.

DISH has come under pressure after Elon Musk’s Starlink wireless broadband service launched a campaign to prevent DISH’s plans to use airwaves for its 5G network.

Starlink has launched a lobbying campaign to prevent the Federal Communications Commission from granting DISH access.

Twitter’s notes

Twitter’s convertible notes were lower in quiet trading following news Musk was attempting to pull out of his $44 billion merger agreement with the social media company.

The 0% convertible notes fell 3 points outright.

They were changing hands just shy of 86.5 versus a stock price of $34.78 early in the session, according to a market source.

They dropped to 85.875 in the late afternoon.

There was $8 million in reported volume.

Twitter’s 0.25% convertible notes due 2024 sank 4 points outright and were changing hand sat 95.375 in the late afternoon.

There was $4 million in reported volume.

The notes were surprisingly quiet given the news, a source said.

However, the takeover agreement has long been in doubt given the convertible notes’ and Twitter stock’s trading levels, a source said.

Twitter stock traded to a high of $34.90 and a low of $32.55 before closing the day at $32.65, a decrease of 11.4% from its $36.85 Friday closing price.

Musk announced post-close Friday that he was terminating his deal with Twitter, claiming the company was in violation of the agreement.

Twitter announced it intends to pursue legal action against Musk to enforce the agreement.

The news is the latest development in Musk’s drama-filled takeover attempt of the company.

While Twitter’s capital structure had wild swings to the upside around Musk’s initial takeover bid and subsequent merger agreement in April, the company’s equity and convertible notes sold off in May with questions raised about the deal’s financing and stalling from Musk.

Twitter’s stock and convertible notes leveled off in June with the 0% notes wrapped around 89.

If the deal had gone forward, there would have been a par put on the 0% convertible notes, which carry a conversion premium of 280%.

The short-duration 0.25% convertible notes due June 15, 2024 are more balanced with a conversion premium of 75%.

Mentioned in this article:

Booking Holdings Inc. Nasdaq: BKNG

DISH Network Corp. Nasdaq: DISH

Expedia Inc. Nasdaq: EXPE

Southwest Airlines Co. NYSE: LUV

Twitter Inc. NYSE: TWTR

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