Convertibles quiet but firm as equities extend losses; Chegg down outright; Etsy improves

By Abigail W. Adams

Portland, Me., Sept. 8 – It was a slow return from the holiday weekend on Tuesday with the convertibles primary and secondary markets quiet as equities extended their losses.

The Dow Jones industrial average closed Tuesday down 632 points, or 2.25%, the S&P 500 down 2.78% and Nasdaq composite down 4.11%.

Tech companies continued to lead equities’ decline. However, the convertible secondary space remained firm in the face of the sell-off in equities.

There was $72 million in reported volume about one hour into the session and $400 million on the tape shortly before the market close.

While the volatility in the stock of some convertible issuers was “tremendous,” there were not large movements in the space to one side or another, a source said.

Chegg Inc.’s convertible notes remained active with its most recent issue sinking further below par.

However, the notes continued to hold on a dollar-neutral basis.

Etsy Inc.’s 0.125% convertible notes due 2027 improved on an outright and dollar-neutral basis following the e-commerce site’s inclusion in the S&P 500.

Tesla Inc.’s convertible notes were active as the electric car manufacturer’s stock tumbled after it was omitted from the S&P 500 index.

Chegg down outright

Chegg’s recently priced 0% convertible notes due 2026 sank further below par on Tuesday as losses mounted for the company’s stock.

The 0% notes were changing hands at 99.25 early in the session.

They continued to trade off as the session progressed and were seen changing hands at 97.75 in the late afternoon.

While down outright, the notes were holding on a dollar-neutral basis.

Chegg stock was again volatile on Tuesday.

Stock traded to a high of $68.33 and a low of $64.72 before closing the day at $66.01, a decrease of 2.84%.

Chegg’s 0% convertible notes traded in a range of 98 to 100.25 last Friday as stock experienced large swings.

It was the first time the new paper, which priced on Aug. 18, traded below par.

Etsy improves

Etsy’s recently priced 0.125% convertible notes due 2027 were improved on an outright and dollar-neutral basis following the company’s inclusion in the S&P 500.

The 0.125% notes traded up to 101 in intraday activity and stood poised to close the day at 100.375.

They were improved about 0.25 point dollar-neutral, a source said.

Etsy’s 0.125% convertible notes due 2026 were also active and were up about 1 point outright to 148.25.

Etsy’s stock traded to a high of $118.20 and a low of $108.37 before closing the day at $110.56, a decrease of 1.32%.

While the e-commerce site for handmade and vintage items’ stock closed the day in the red, it was on the rise for the majority of the session following its inclusion in the S&P 500.

Convertible issuers typically don’t meet the criteria for inclusion in the S&P 500 with the majority of the universe composed of small and mid-cap stocks, a source said.

In order to be included in the index, a company must have a market cap of at least $8.2 billion, be highly liquid, have a public float of at least 50% of its outstanding shares, and have positive earnings for at least four quarters.

Tesla tumbles

Tesla’s convertible bonds were active as its stock stumbled after it was not included in the S&P 500.

The deep-in-the-money notes are now essentially an equity surrogate, a source said.

Each tranche shaved off over 100 points outright as stock got “annihilated,” a source said.

The 1.25% convertible notes due 2021 and the 2% convertible notes due 2024 were among the most actively traded issues in the secondary space.

The notes were trading below parity and were improved about 0.125 point to 0.25 point dollar-neutral, another source said.

The 1.25% convertible notes were changing hands around 470 heading into the market close.

The 2% convertible notes were trading around 536.

Tesla stock traded to a high of $368.74 and a low of $330 before closing Tuesday at $330.21, a decrease of 21.06%.

After a monumental run that saw the stock gain even after a stock split, stock sank after the electric car manufacturer was not included in the S&P 500 at the rebalancing of the index.

Tesla’s inclusion was widely anticipated with the company meeting the index’s criteria.

Mentioned in this article:

Chegg Inc. NYSE: CHGG

Etsy Inc. Nasdaq: ETSY

Tesla Inc. Nasdaq: TSLA

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