RH’s new convertibles on hold; Vector, Cemex approach maturity; Weatherford active

By Abigail W. Adams

Portland, Me., Dec. 6 – The convertibles secondary market saw light trading volume on Thursday with equities volatile throughout the session.

The Dow Jones industrial average opened the day down more than 500 points but pared its losses to close the day down 79 points after closing Tuesday down 800 points.

There is typically a delay in the convertible secondary market when equities get clocked, with many watching the market to determine their positions, a market source said of the light trading volume.

With market conditions remaining volatile, RH, formerly Restoration Hardware, put its prospective offering of $300 million five-year convertible notes on hold, which many sources suspected would occur.

However, despite a resurgence of tension between the United States and China after the high-profile arrest of Huawei CFO Meng Wanzhou, iQIYI Inc.’s recently priced 3.75% convertible notes due 2023 maintained their gains in the secondary space.

While volume was light, Momo Inc.’s 1.25% convertible notes due 2025 improved dollar-neutral as stock plummeted in the wake of its third-quarter earnings.

Weatherford International Ltd.’s 5.875% convertible notes due 2021 were active and trading down as crude oil futures continued to crater.

Vector Group Ltd.’s 7.5% convertible notes due Jan. 15, 2019 were active and trading largely for their yield as the notes approach their maturity.

Cemex SA’s 3.72% convertible notes due March 15, 2020 were also active in the secondary space and trading with a decent yield to maturity, a market source said.

RH on hold

RH’s proposed $300 million offering of five-year convertible notes was placed on hold as equity markets continued to deteriorate on Thursday.

RH announced it was ‘exploring’ a new convertible notes offering on Tuesday.

Price talk had the deal coming with a coupon of 0%, an initial conversion premium of 25% and a reoffer price of 99 to par, according to market source.

“It’s crazy they’re trying to do this,” a source said. The deal was announced on Tuesday as the Dow plummeted 800 points.

However, the company was non-committal about the deal in its press release, saying it was an opportunistic offering.

Trade tensions in focus

While Thursday opened with a surprise escalation in tensions between the United States and China, convertibles from Beijing-based companies saw improvement in the secondary space.

iQIYI’s recently priced 3.75% convertible notes due 2023 were holding onto their gains, a market source said.

The notes from the Beijing-based online entertainment service provider were seen at 103.5 bid, 104 offered versus a stock price of $19.68.

“I’m surprised how well they’re holding up,” a market source said.

The notes were improved slightly dollar-neutral.

They appeared unaffected by the deteriorating relationship between the United States and China following the arrest of Huwai CFO Meng Wanzhou in Canada for extradition to the U.S. on unspecified charges.

Momo’s 1.25% convertible notes were down outright but improved dollar-neutral as stock sank post third-quarter earnings.

The Beijing-based social media platform’s notes traded down about 5 points outright to 81 as its equity plummeted.

However, the notes pushed out slightly dollar-neutral, a market source said, although the gains were not as much as anticipated.

Momo’s American Depositary Shares traded as low as $26.00 before closing the day at $27.05, a decrease of 14.64%.

Momo reported non-GAAP earnings per share of 53 cents, which were in line with analyst expectations.

While the social media platform beat analyst expectations with revenue of $536 million versus the expected $533 million, stock traded down on weak fourth-quarter guidance.

Weatherford active

Weatherford’s 5.875% convertible notes due 2021 were among the most actively traded during Thursday’s session.

The notes traded down 1.75 points outright to close the day at 69.75, according to Trace data.

The yield to maturity on the notes was almost 22%.

“Looks like there are some problems there,” a market source said of the credit.

Weatherford is one of the bellwether oil and gas names in the convertibles space.

The convertible’s downward move comes with crude oil futures continuing to crater in the wake of the closely watched OPEC meeting on Thursday.

Crude oil futures slid to $50.68, a decrease of $2.21 or 4.18%, shortly before 11 a.m. ET. However, crude oil futures pared their losses alongside the overall market and settled at $51.64, a decrease of $1.24 or 2.36%.

The OPEC meeting ended with no clear decision regarding production cuts.

Non-OPEC members, including Russia, are set to meet on Friday with doubts lingering about Russia’s willingness to support a cut.

For the yield

Vector’s 7.5% convertible notes due Jan. 15, 2019 were active in the secondary space with maturity about one month away.

The notes were trading around 102.75.

With the notes on a small delta and maturity quickly approaching, the 7.5% notes were trading largely for their coupon, which was about 2.5% at the current market rate, a source said.

Vector stock would have to surpass $13.80 for the notes to have any conversion value, a market source said.

Stock closed Thursday at $11.75, a decrease of 2.73%.

With 1.5 years until maturity, Cemex’s 3.72% convertible notes due March 15, 2020 were also largely trading for their yield.

The notes were changing hands at 97.875 with a yield to maturity of 5.34%. The notes do not trade on a delta, a market source said.

Mentioned in this article:

Cemex SA NYSE: CX

iQIYI Inc. Nasdaq: IQ

Momo Inc. Nasdaq: MOMO

RH NYSE: RH

Vector Group Ltd. NYSE: VGR

Weatherford International Ltd. NYSE: WFT

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