Momo convertibles in focus, expand; PagerDuty tanks outright; K12 notes back below par

By Abigail W. Adams

Portland, Me., Sept. 3 – While equity markets saw their first major pullback in weeks with the Dow Jones industrial average closing the day down 807 points, or 2.78%, the S&P 500 down 3.51% and the Nasdaq composite down 4.96%, the convertibles secondary remained firm, sources said.

Trading volume remained relatively light despite huge movements in the equities of some convertible issuers with about $432 million on the tape about one hour before the market close.

The pullback “really hasn’t unleashed any selling,” a source said. “There’s no panic yet.”

Momo Inc.’s 1.25% convertible notes due 2025 were among the most actively traded issues during Thursday’s session.

The notes were expanding as the company’s equity tanked following its earnings report.

While volume was light, PagerDuty Inc.’s 1.25% convertible notes due 2025 dropped outright but expanded dollar-neutral as stock also sold off following its earnings report.

K12 Inc.’s 1.125% convertible notes due 2027, the last deal to price since the primary market’s hiatus, again dropped below par as stock sold off amid the general weakness in equities.

Momo in focus

Momo’s 1.25% convertible notes due 2025, an off-the-run name that rarely makes an appearance on the volume chart, was the top trader of Thursday’s session as its equity tanked.

The notes traded down about 0.5 point outright with equity down about 15%.

The 1.25% notes were marked at 81.5 bid, 82.5 offered on Thursday, a source said.

The lack of movement in dollar-price is to be expected with the conversion premium in the name “massive,” a source said.

However, the notes expanded 1 point dollar-neutral on the move in its American Depositary Shares, another source said.

There were about $15 million of the bonds on the tape heading into the market close.

Momo’s ADSs traded to a high of $18.54 and a low of $16.76 before closing the day at $16.78, a decrease of 15.70%.

The Beijing-based mobile social networking platform’s equity was trading off on weak revenue and a downbeat forecast.

While Momo’s earning per share of $0.43 were in line with expectations, revenue of $547.5 million fell slightly short of expectations for revenue of $548.7 million.

Revenue forecasts for the third quarter also missed expectations.

PagerDuty expands

PagerDuty’s 1.25% convertible notes due 2025 tanked outright but expanded dollar-neutral as stock sold off following the software company’s earnings report.

The 1.25% notes shaved off 15 points outright with stock off more than 25%.

The notes traded as low as 99.875 early in the session but stood poised to close the day above par at 100.625.

The notes expanded 1.5 to 2 points dollar-neutral on the move down, a source said.

However, volume in the name was extremely light with less than $4 million on the tape heading into the market close.

“I’m surprised,” a source said. “You’d think there’d be a frenzy of buying.”

With the market hot, few names in the universe have been trading below par.

PagerDuty stock traded to a high of $27.45 and a low of $24.60 before closing the day at $25.97, a decrease of 25.78%.

Stock sold off following the software company’s earnings report, which was largely in line with expectations, MarketWatch reported.

PagerDuty reported losses per share of 4 cents, which beat analyst expectations for a loss of 7 cents per share.

Revenue of $50.7 million was in line with expectations.

The company reported third-quarter guidance with a loss of 10 cents to 11 cents per share, which was wider than the 9 cents analysts expected.

K12 below par

K12’s recently priced 1.125% convertible notes due 2027 again dropped below par after popping above earlier in the week.

The 1.125% notes traded as low as a 97-handle on Thursday.

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

K12 stock traded as high as $37.11 and as low as $34.32 before closing the day at $34.89, a decrease of 7.08%.

The notes have been volatile alongside stock since hitting the aftermarket on Aug. 27.

They closed last week on a 99-handle but traded as high as 101 on Monday as stock pared some of its losses.

K12 joins the small club of recent deals that are trading below par.

However, with the move on Thursday, several other recent deals ae again approaching their issue price, a source said.

Mentioned in this article:

K12 Inc. NYSE: LRN

Momo Inc. Nasdaq: MOMO

PagerDuty Inc. NYSE: PD

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