Twitter sees buyers on downturn; newer Twitter Cs flat to 0.25 point better on hedge

By Rebecca Melvin

New York, July 27 – Twitter Inc.’s convertibles slipped lower on an outright basis on Friday as investors punished the common shares of the social media company on a warning about declining users. But on a dollar-neutral, or hedged, basis, the Twitter B and C tranches were unchanged to better, market sources said.

There were buyers on the downturn in the trio of Twitter convertible bonds, a New York-based source said.

“Guys were definitely selling it, but there were definitely buyers scooping it up,” a second New York-based source said.

As is typical of more balanced convertibles, the Twitter B tranche and the newer Cs expanded a small amount on the large move in their underlying shares, which was a downdraft of 20.5%.

Twitter’s 1% convertibles due 2021, or the B tranche, printed with a 93 handle at late morning, but most of the trades were between 96.3 and 96.7, which was off from 97 to 98 on Thursday, according to Trace data.

The B notes expanded by as much as 0.5 point on hedge if the notes were set up on a 40% delta. But many investors were set up on a lighter delta hedge. So if the notes were on a 30% delta, they were unchanged on the day, a market source said.

The newer Twitter 0.25% convertibles due 2024, or the C tranche, also expanded but only by about 0.25 point if set up on the theoretical delta hedge of 65%. But again, many individuals were a little lighter on delta going into the day and the paper was called unchanged in that case.

Twitter priced $1.15 billion of the C notes last month with an initial conversion premium of 42.5%.

The Twitter 0.25% convertibles due 2019, or the A tranche, were not trading on hedge and those bonds were seen around 96.75, compared to 97 to 98 previously.

Twitter shares closed down $8.82, or 20.5%, to $34.12.

The company said that monthly users fell in the second quarter by a million as the platform cleaned out fake accounts, and the company forecast that the decline is likely to continue.

Twitter is working on “improving the health of public conversation,” the company said.

Elsewhere, Intel Corp.’s convertibles were trading down in line with a big move lower in the underlying shares of the Boise, Idaho-based chip giant. Shares fell more than 8% despite a better-than-expected earnings report on Thursday, as investors worried about product delays and encroaching competition. Advanced Micro Devices Inc. soared by 14% after its quarterly earnings report, for example.

BofA Merrill Lynch downgraded Intel shares on Friday to “neutral” from “buy” and lowered its stock price target to $56 from $62, citing the product delays as the company’s biggest risk.

“Intel has basically been trading between parity minus 2.5 points to 2 points,” a New York-based trader said. It has a 100% delta and will stay that way since it is still above double par, the trader said.

Intel’s 3.25% convertibles due 2039 were last at 228.95, compared to about 250 on Thursday. Shares of Intel closed down $4.48, or 8.6%, to $47.68.

Pacira Pharmaceuticals Inc.’s convertibles were quiet with the underlying shares continuing to move higher on Friday. The Pacira 2.375% notes due 2022 had expanded about 0.5 point on Thursday following a stock surge on the latest proposed Medicare and Medicaid billing rules, a New York-based trader said.

The Centers for Medicare & Medicaid Services said the proposed policies in the Medicare hospital outpatient prospective payment system would be a 1.25% rate raise in calendar year 2019 compared to calendar year 2018. In addition, the rule includes several “site-neutral” payment policy proposals.

On Thursday shares of the Parsippany, N.J.-based specialty pharmaceutical company finished 13% higher and the bonds closed at 99.625 bid, 100.125 offered versus the $40.80 share price, the trader said.

Other health care-related convertibles were not affected by the OPPS/ASC proposed changes. Pacira is the convertible most affected by this, the trader said.

Mentioned in this article:

Intel Corp. Nasdaq: INTC

Pacira Pharmaceuticals Inc. Nasdaq: PCRX

Twitter Inc. Nasdaq: TWTR

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