Investment-grade convertible notes in focus; Splunk active; Twitter trades up to takeout

By Abigail W. Adams

Portland, Me., Oct. 20 – Trading activity in the convertibles secondary space remained subdued on Thursday with no new paper entering the space to jumpstart activity.

The primary market was dormant throughout the week, a surprise to some given the early week rally in equities.

However, activity was expected to be light with many companies in earnings season blackouts.

The primary market is expected to resume activity in the coming week with some deals heard to be in the works.

Meanwhile, volume was thin on a volatile day for equity markets with indexes swinging from large gains at the open to losses by the close.

The Dow Jones industrial average closed Thursday down 90 points, or 0.30%, the S&P 500 index closed down 0.80%, the Nasdaq Composite index closed down 0.61% and the Russell 2000 index closed down 1.24%.

The rally in U.K. markets that bolstered equities early in the session faded as the pound turned negative, another correlation that needed to be factored in with Treasuries, a source said.

There was $50 million in reported volume about one hour into the session and $412 million heading into the market close.

Investment-grade convertible notes were in focus with several high-grade notes active during Thursday’s session.

Expedia Inc.’s 0% convertibles due 2026 (Baa3/BBB-/BBB-), Western Digital Corp.’s 1.5% convertible notes due Feb. 1, 2024 (Baa3) and Euronet Worldwide Inc.’s 0.75% convertible notes due 2049 (BBB) all saw heavy volume.

Splunk Inc.’s 1.125% convertible notes due 2027 topped the volume charts on Thursday although with little movement in price.

Twitter Inc.’s convertible notes saw some action with the market gaining confidence in the closing of Elon Musk’s acquisition of the company after Musk addressed the transaction during Tesla’s conference call.

Investment grade

Investment-grade convertible notes were in focus on Thursday with several names active as Treasuries hit their highest level in almost two decades.

Expedia’s 0% convertible notes due 2026 were seen at 86.125 with a yield flat with Treasuries, a source said.

There was $11 million in reported volume with two $5 million plus trades on the tape.

The notes have a conversion premium over 150%, but “they don’t look too bad,” a source said.

The notes offer a solid yield and still have some conversion potential.

Expedia’s stock traded to a high of $97.63 and a low of $92.92 before closing the day at $93.15, a decrease of 3.09%.

Western Digital’s 1.5% convertible notes due Feb. 1, 2024 were also among the volume movers although with little movement in price.

The 1.5% convertible notes remained on a 95-handle with several large trades in the 95.125 to 95.25 context for a yield just shy of 5.5%.

There was $9 million in reported volume.

Western Digital’s notes have long traded for their yield with short-duration, high-yield notes favored by buyers.

Euronet’s 0.75% notes due 2049 also saw heavy volume with little movement in price.

The notes continued to hover around 92.25 with a yield of about 5%.

There was $13 million in reported volume.

The notes are putable on March 15, 2025.

Euronet’s stock traded to a low of $75.88 and a high of $78.59.

Investment-grade notes are favored by European buyers, a source said.

Splunk active

Splunk’s 1.125% convertible notes due 2027 continued to see heavy volume with the notes slightly stronger on an outright basis as stock held onto its gains.

The 1.125% convertible notes were changing hands at 83.75 versus a stock price of $77.90 in the late afternoon.

There was $14 million in reported volume.

Splunk’s stock traded to a low of $77.04 and a high of $79.63 before closing the day at $78.17, an increase of 1.41%.

Splunk’s convertible notes have attracted attention recently following news activist investor Starboard Value had a sizable stake in the company.

Twitter’s takeout

While volume in the name was light, Twitter’s convertible notes were trading with confidence that Musk’s acquisition of the company would be completed.

Twitter’s 0.25% convertible notes due 2024 traded up 0.5 point outright to 110.25 on Thursday.

The 0% convertible notes due 2026 gained 1 point to 98.

The convertible notes were trading with confidence that the closing of Musk’s acquisition was “close to happening,” a source said.

Musk’s acquisition of Twitter has been one of the most bizarre takeover sagas in the history of M&As with Musk’s initial hostile takeover attempt thwarted by Twitter’s board, which eventually coalesced only to have Musk attempt to renege on the offer with Twitter’s board taking legal action to ensure its completion.

Twitter’s lawsuit was paused with Musk given until Oct. 28 to close the deal.

Musk addressed the transaction during Tesla’s conference call giving the market renewed confidence that the deal would go through.

Mentioned in this article:

Expedia Inc. Nasdaq: EEFT

Euronet Worldwide Inc. Nasdaq: EEFT

Splunk Inc. Nasdaq: SPLK

Twitter Inc. NYSE: TWTR

Western Digital Corp. Nasdaq: WDC

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