High-grade convertible notes in focus; Lumentum gains pre-earnings; Rocket Lab higher

By Abigail W. Adams

Portland, Me., Feb. 6 – The convertibles primary market remained dormant on Tuesday to the dismay of a market that is hungry for new paper.

While demand for new deals is strong, sources were beginning to question how robust the pipeline will be with the Fed’s prospective rate cuts pointed to as a potential drag on the high volume of issuance the market has been expecting.

Meanwhile, there was an uptick of activity in the secondary space with markets stabilizing after a heavy start to the week.

Equity indexes were either side of unchanged early in the session but saw a strong finish as Treasuries improved.

The Dow Jones industrial average closed Tuesday up 141 points, or 0.37%, the S&P 500 index closed up 0.23%, the Nasdaq Composite index closed up 0.07% and the Russell 2000 index closed up 0.85%.

There was $128 million in reported volume about one hour into the session and $573 million on the tape in the late afternoon.

High-grade names continued to dominate the tape with American Water Capital Corp.’s 3.625% exchangeable senior notes due 2026 (Baa1/A), Welltower Inc.’s 2.75% convertible notes due 2028 (Baa1/BBB+) and Southern Co.’s 3.875% convertible notes due 2025 (Baa2/BBB) the names of the day on Tuesday.

While the notes saw heavy volume, there was little movement in price.

Lumentum Holdings Inc.’s 0.5% convertible notes due 2026 gained in active trade with stock spiking on the eve of the company’s earnings report.

Rocket Lab USA Inc.’s 4.25% convertible notes due 2029, the last issue to clear the primary market, continued to jettison higher in active trade.

High-grade trades

High-grade trades continued to dominate the tape on Tuesday with several names seeing heavy volume although with little movement in price.

American Water’s 3.625% exchangeable notes due 2026 were trading at 98.125 versus a stock price of $122.07 early in the session, according to a market source.

They were wrapped around 98 in the late afternoon.

There was $19 million in reported volume.

American Water’s stock traded to a low of $120.61 and a high of $122.89 before closing at $122.52, an increase of 0.82%.

Welltower’s 2.75% convertible notes due 2028 were seen at 108 versus a stock price of $87.24.

The notes remained wrapped around 108 for the duration of the session with the majority of activity in the name occurring early in the session.

There was $14 million in reported volume.

Welltower’s stock traded to a low of $86.32 and a high of $87.66 before closing at $86.53, up 0.023%.

Southern Co.’s 3.875% convertible notes due 2025 were trading at 98.75 versus a stock price of $66.99.

There was $15 million in reported volume.

Southern Co.’s stock traded to a low of $66.94 and a high of $67.68 before closing at $67.40, up 0.33%.

Lumentum gains

Lumentum’s 0.5% convertible notes due 2026 made strong gains on Tuesday with the company set to report earnings later in the week.

The 0.5% notes added 2.5 points outright with stock up more than 5%.

The notes were trading at 92.5 versus a stock price of $59.22 in the late afternoon, according to a market source.

There was $12 million in reported volume.

Lumentum’s stock traded to a low of $58.25 and a high of $60.99 before closing at $58.84, an increase of 5.83%.

There was no apparent reason for the spike in Lumentum’s stock on Tuesday.

The optical and photonics maker’s earnings report is slated for Feb. 8.

However, the spike in stock seemed somewhat premature, a source said.

The market had been expecting a large stock move surrounding earnings.

However, with the move on Tuesday, the post-earnings volatility may be somewhat subdued.

Rocket rises

Rocket Lab’s 4.25% convertible notes due 2029 were once again active on Tuesday with the notes rocketing higher.

The notes gained 2 points outright with stock up about 4%.

The convertibles were trading at 106.375 versus a stock price of $4.22 in the late afternoon, according to a market source.

The notes were largely moving in line dollar-neutral.

There was $7 million in reported volume.

Rocket Lab’s stock traded to a low of $4.03 before closing at the intraday high of $4.26, an increase of 4.67%.

The 4.25% convertible notes have made strong gains in the aftermarket since pricing at par on Feb. 1.

Mentioned in this article:

American Water Works Co., Inc. NYSE: AWK

Lumentum Holdings Inc. Nasdaq: LITE

Rocket Lab USA Inc. Nasdaq: RKLB

Southern Co. NYSE: SO

Welltower Inc. NYSE: WELL

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