Wayfair convertible notes active, stock pulls back; Palo Alto, Coupa notes improve

By Abigail W. Adams

Portland, Me., Jan. 24 – The convertibles primary market remained dormant on Tuesday as the market awaits an onslaught of earnings over the next two weeks.

While sources have been surprised about the lack of a pipeline, conversations are ongoing and the floodgates are expected to open soon, especially if equities hold their strength.

While there has been a shortage of new paper to stimulate activity, the secondary space has remained active as accounts put money to work in outstanding issues.

However, it has been “slim pickings,” a source said, with demand for new paper strong.

Tuesday marked another active session in the secondary space despite the lack of new issuance and a largely sideways day for equities.

Indexes closed Tuesday mixed after wavering between nominal gains and losses throughout the session with the Dow Jones industrial average closing up 104 points, or 0.31%, the S&P 500 index closing down 0.07%, the Nasdaq Composite index down 0.27% and the Russell 2000 index down 0.27%.

While macro data has driven the equity rally over the past few weeks, attention is now turning toward earnings, particularly from tech companies, to determine if the rally will have staying power.

There was $70 million in reported convertibles trading volume about one hour into the session and $752 million in reported volume at the market close with a wide range of names in play.

Wayfair Inc.’s 3.25% convertible notes due 2027 continued to dominate activity in the secondary space with the notes giving back some gains as stock pulled back after a more than 40% gain over the previous two sessions.

Palo Alto Networks Inc.’s 0.375% convertible notes due 2025 were on the rise in heavy volume after an analyst initiated coverage.

Coupa Software Inc.’s 0.375% convertible notes due 2026 also gained strength in active trading as the takeover of the company approaches.

Etsy Inc.’s 0.125% convertible notes due 2026 were also active although with little change in price.

Wayfair pulls back

Wayfair’s 3.25% convertible notes due 2027 continued to dominate activity in the secondary space with the notes giving back some gains after their meteoric rise over the past two sessions.

The 3.25% notes were down about 4 points outright as stock fell 7% during Tuesday’s session.

The notes were seen at 118.5 versus a stock price of $58.20 early in the session, according to a market source.

They were trading at $114.5 versus a stock price of $56.05 in the late afternoon.

There was $23 million in reported volume.

Wayfair’s stock traded to a high of $65.62 and a low of $53.55 before closing the day at $54.65, a decrease of 7.94%.

While the notes gave back some gains on Tuesday, they have risen 30 points and expanded 4 to 5 points dollar-neutral since last Friday.

Wayfair’s convertible notes and stock have skyrocketed since the company announced mass layoffs as part of a cost-cutting campaign.

Palo Alto adds

Palo Alto’s 0.375% convertible notes due 2026 were among the volume movers on Tuesday with the notes receiving renewed attention after a JPMorgan analyst initiated coverage.

The 0.375% convertible notes rose 4 points outright with stock up about 1%.

The notes were trading at 156.875 versus a stock price of $151.05 early in the session, according to a market source.

The convertibles rose to a 158-handle by the late afternoon and were changing hand sat 158.625 heading into the market close.

There was $13 million in reported volume.

Palo Alto’s stock traded to a low of $149.39 and a high of $152.16 before closing the day at $151.14, a decrease of 1.21%.

The notes were most likely moving due to a JPMorgan analyst’s initiation of the stock with an overweight rating and a price target of $195, a source said.

Coupa improves

Coupa’s 0.375% convertible notes due 2026 continued to see heavy volume with the notes improved as the company’s acquisition draws closer.

The 0.375% notes added about 0.375 point outright to trade just shy of 97.25 in the late afternoon.

There was $10 million in reported volume.

The 0.375% notes have been active over the past few weeks as the closing of Thoma Bravo’s acquisition of the company draws closer.

The notes have traded on a 96-handle since the acquisition was announced in mid-December.

The deal is expected to close in the first half of 2023 with the convertible notes to be taken out at par.

Etsy active

Etsy’s 0.125% convertible notes due 2026 were active on Tuesday although with little movement in price.

The 0.125% notes were trading at 172 versus a stock price of $138.04 in the late afternoon.

There was $10 million in reported volume.

Etsy’s stock traded to a low of $135.50 and a high of $139.31 before closing the day at $136.68, a decrease of 1.75%.

Mentioned in this article:

Coupa Software Inc. Nasdaq: COUP

Etsy Inc. Nasdaq: ETSY

Palo Alto Networks Inc. Nasdaq: PANW

Wayfair Inc. NYSE: W

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