Convertibles trading light; Western Digital active; Shopify comes in; K12 losses mount

By Abigail W. Adams

Portland, Me., Sept. 25 – The convertibles secondary space was quiet on Friday with volume light as equities struggled to pare their losses from a volatile week.

While the Dow Jones industrial average, S&P 500 index and Nasdaq composite were wavering between gains and losses early in the session, the benchmarks turned positive heading into the afternoon and roared into the close.

However, volume was light even as the market strengthened with about $345 million in reported volume about one hour before the market close.

While volume was light, there was a lot of selling activity in the space even amid improved market conditions.

Accounts may have been making room for some anticipated new issuance, a source said.

The Sept. 21 week was expected to be an active one for new deal activity with the week the last full one of the third quarter.

However, the pullback in equities may have sidelined some potential issuers, a source said, with just three deals totaling $1.25 billion clearing the primary market.

Trading activity surrounding the new paper to price over the past week was light on Friday with focus on some outstanding issues.

Western Digital Corp.’s 1.5% convertible notes due 2024 were the top volume movers in the secondary space with holders continuing to “sell the news” regarding the company’s planned reorganization.

Shopify Inc.’s 0.125% convertible notes due 2025 were also active and coming in on a dollar-neutral basis as the ecommerce company’s stock continued to shoot higher.

Norwegian Cruise Line Holdings Ltd.’s 6% exchangeable notes due 2024 were active early in the session with the notes making large gains on an outright basis as stock skyrocketed.

K12 Inc.’s 1.125% convertible notes due 2027 continued their downward spiral on Friday with the recently priced notes now trading on an 82-handle.

Western Digital in focus

Western Digital’s 1.5% convertible notes due 2024 were again in focus on Friday as holders continued to sell following news of the company’s planned reorganization.

The 1.5% convertible notes traded down to 95.25 in the mid-afternoon. However, there continued to be some odd-lot trades on a 96-handle.

With almost $20 million in reported volume shortly before the market close, the 1.5% notes were the most actively traded issue during Friday’s session.

The notes have been active and trading down since Wednesday when the data storage company announced that it was reorganizing its business with the goal to split its flash and hard disk drive businesses into two separate companies.

If the company does split, it is unclear which unit would assume the company’s debt, a source previously said.

Shopify comes in

Shopify’s 0.125% convertible notes due 2025 were coming in on swap in active trading on Friday.

The 0.125% notes were changing hands at 107 bid, 108 offered in the midafternoon, according to a market source.

They were trading just shy of 109 as stock continued to rise heading into the market close.

However, the notes were coming in on a dollar-neutral basis.

The notes were seen contracted about 0.5 point dollar-neutral in the mid-afternoon, a source said.

The bonds saw about $8 million in reported volume heading into the market close.

Shopify stock traded to a low of $911.19 and a high of $961.25 before closing the day at $960.92, an increase of 5.76%.

The notes have made large gains on an outright and dollar-neutral basis since they made their aftermarket debut on Sept. 16.

Shopify’s 0.125% notes have expanded more than 6 points dollar-neutral since hitting the aftermarket.

Norwegian Cruise Line gains

Norwegian Cruise Line’s 6% exchangeable notes due 2024 were active early in Friday’s session as stock skyrocketed.

While activity petered out into the afternoon, the 6% notes gained almost 10 points outright with stock up more than 8%.

The notes were changing hands at 139.75 early Friday.

Norwegian Cruise Line stock traded to a low of $15.57 and a high of $16.64 before closing the day at $16.63, an increase of 13.67%.

Stock was making large gains after Barclays analysts upgraded the cruise line’s stock with a possible end to the no-sail order coming as early as next week, CNBC reported.

K12 down again

K12’s 1.125% convertible notes due 2027 continued their downward spiral in active trading on Friday.

The notes, which priced at par on Aug. 26, traded down to the low 80s.

They were down about 2 points outright to 82.625 in the late afternoon.

The notes contracted another 1 point dollar-neutral.

End-of-quarter selling was putting pressure on the notes, a source said.

K12 stock traded to a low of $25.66 and a high of $26.66 before closing the day at $26.51, an increase of 0.61%.

While the notes have struggled since pricing amid the renewed volatility in the markets, they have been on a downward spiral since mid-September when the Miami-Dade School Board voted to terminate its contract with My School Online, a K12 program.

Mentioned in this article:

K12 Inc. NYSE: LRN

Norwegian Cruise Line Holdings Ltd. NYSE: NCLH

Shopify Inc. NYSE: SHOP

Western Digital Corp. Nasdaq: WDC

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