Convertibles secondary tone improves; Wayfair notes in focus; Southwest, American gain

By Abigail W. Adams

Portland, Me., April 13 – There was an uptick of activity in the convertibles secondary space on Wednesday as the market’s tone improved with equity markets firmly in the green after a volatile session on Tuesday.

The Dow Jones industrial average closed the day up 344 points, or 1.01%, the S&P 500 index closed the day up 1.12%, the Nasdaq Composite index closed up 2.03% and the Russell 2000 index closed up 1.92%.

There was a level of apprehension early in the session with sources questioning if Wednesday’s early morning rally would turn into a selling opportunity that would drive markets down in a repeat of Tuesday’s price action.

However, equity markets continued to gain strength as the session progressed.

“Things are definitely feeling better today,” a source said.

While trading volumes were relatively light with no new paper entering the space, the market was more active than some anticipated ahead of the holiday weekend.

There was $62 million in reported volume about one hour into the session and $560 million in reported volume shortly before the market close.

Wayfair Inc.’s convertible notes dominated activity the space with the three tranches improved in the high-volume activity.

American Airlines Group Inc.’s 6.5% convertible notes due 2025 and Southwest Airlines Co.’s 1.25% convertibles due 2025 (Baa1/BBB) were also posting gains in active trading as peer Delta Air Lines Inc. beat earnings expectations.

Wayfair in focus

Wayfair’s three tranches of convertible notes dominated the tape on Wednesday with the combined volume in the tranches accounting for more than 10% of the daily reported volume.

The home decor e-commerce company’s 0.625% convertible notes due 2025 were up about 0.5 point outright.

They were changing hand at 79.375 versus a stock price of $115.69 in the late afternoon.

There was $31 million in reported volume.

The 1.125% convertible notes due 2024 were up 4 points outright.

They were changing hands at 122.375 versus a stock price of $115.43 in the late afternoon.

There was $24 million in reported volume.

The 1% convertible notes due 2026 rose 2 points outright.

The notes were trading at 102.625 versus a stock price of $106.93 early in the session.

They climbed to 105.125 versus a stock price of $113.58 in the late afternoon.

There was $18 million in reported volume.

The notes were improved dollar-neutral in the high-volume activity, a source said.

Wayfair’s stock traded to a low of $105.24 and a high of $117 before closing the day at $116.84, an increase of 8.64%.

There may have been some outright selling in the name ahead of earnings, a source said.

Wayfair is scheduled to report earnings on May 6.

The estimates are for a loss per share of 77 cents to $1.64.

Airlines gain

Airlines were posting gains in active trading following Delta Air Lines’ earnings beat.

Southwest’s 1.25% convertible notes due 2025 gained 7 points outright with stock up more than 7.5%.

The notes were changing hands at 135.75 versus a stock price of $45.98 in the late afternoon.

There was $18 million in reported volume.

Southwest’s stock traded to a low of $44.12 and a high of $46.07 before closing the day at $46.05, an increase of 7.54%.

American Airlines’ 6.5% convertible notes due 2025 rose to change hands at 139.375 versus a stock price of $18.88 late in the session.

There was $12 million in reported volume.

American Airlines’ stock traded to a high of $18.99 and a low of $17.86 before closing the day at $18.95, an increase of 10.62%.

Airlines were on the rise after Delta announced an earnings beat.

American Airlines also upwardly revised its first-quarter earnings guidance on strong demand.

The company now expects a decline of 16% in revenue as opposed to the previously anticipated decline of 17%, according to a company news release.

Mentioned in this article:

American Airlines Group Inc. Nasdaq: AAL

Southwest Airlines Co. NYSE: LUV

Wayfair Inc. NYSE: W

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