Convertibles market opens week quietly; Twitter lower; Illumina, Palo Alto active

By Abigail W. Adams

Portland, Me., July 30 – The convertibles secondary market opened the week quietly with focus turning toward the deluge of earnings reports to be announced in the coming week, the 10-year Treasury bond yield and the pending Federal Reserve meeting.

While there is hope new paper will enter the space, the deals that were anticipated for last week did not materialize. “It feels like things are cooking; I’m just not sure when they’ll pop,” a market source said.

It was not on Monday, as no deals were announced after the market close.

Secondary trading was light on Monday with about $58 million on the tape early in the session and $342 million on the tape by late afternoon.

While some desks pegged the day as a quiet summer Monday, other desks were busy with large liquidation orders coming through. However, there was “no one name of the day,” a market source said.

Palo Alto Networks Inc.’s convertible notes were active on the tape as stock took a hit alongside the broader tech sector.

The network and enterprise security company’s 0.75% convertible notes due 2023 traded to their lowest outright price since hitting the market on July 10.

Twitter Inc.’s 0.25% convertible notes due 2024 continued to drop on an outright basis as the social media company’s stock continued to tumble.

While also trading at its lowest outright price since hitting the market in early June, the notes continued to hold dollar-neutral, a market source said.

Illumina Inc.’s convertible notes were active and trading down alongside stock on Monday ahead of the company’s second-quarter earnings report, which was announced after the market close.

Chegg Inc.’s 0.25% convertible notes due 2023 were also trading down alongside stock on Monday ahead of the company’s second-quarter earnings, which were announced after the market close.

While the stock of both companies took a hit during Monday’s session, stock was on the rise in after-hours trading after both companies announced an earnings surprise.

Palo Alto active

Palo Alto’s convertible notes were among the volume movers on Monday. The company’s recently priced 0.75% convertible notes due 2023 hit their lowest outright price since their market debut on July 10.

The notes were seen trading at 97.715 versus an equity price of $196.35 with about $10 million of the bonds on the tape by late afternoon, according to a market source. The notes were down about 2.5 points on an outright basis.

Palo Alto’s 0% convertible notes due 2019 were also active with the notes trading down more than 17 points on an outright basis. However, the notes continued to trade at parity.

They were seen changing hands at 177 versus an equity price of $195.99 with about $5 million of the bonds on the tape by late afternoon.

Palo Alto stock closed Monday at $195.66, a decrease of 5.92%.

While tech stocks continued to take a hit on Monday, convertible bonds from the tech sector “were holding up well,” a market source said. “There’s plenty of long-only demand.”

Convertible bonds from the tech sector were maintaining their strength after some weakness following the influx of new paper over the past few months.

Twitter ‘beaten up’

Twitter’s convertible notes were also active on the tape on Monday.

While the social networking site’s 0.25% notes dropped to their lowest outright price on Monday since hitting the market in early June, they were again seen slightly improved on a dollar-neutral basis.

The notes traded as low as 91.619 early Monday, according to Trace data. They were seen trading at 91.249 versus an equity price of $31.65 in the mid-afternoon with about $4 million of the bonds on the tape.

While the notes “got beaten up,” on an outright basis, they were holding on hedge, a market source said.

Twitter’s 1% notes due 2021 and 0.25% notes due 2019 were also active.

The 1% notes were seen down about 1.5 points to trade at 92.85 with about $7.5 million of the bonds on the tape. Twitter’s 0.25% notes due 2019 continued to trade at 96.3.

Twitter stock closed Monday at $31.38, a decrease of 8.03% after dropping about 20% on Friday.

Twitter’s stock drop followed Facebook’s record-setting loss on July 26 and shaken investor confidence in social networking sites.

Earnings surprises

Illumina’s convertible bonds and Chegg’s 0.25% convertible notes due 2023 saw some movement during Monday’s session ahead of the companies’ second-quarter earnings announcements.

Illumina’s 0% convertible notes due 2019 were seen trading at 120.96 versus an equity price of $291.24.

While the notes were previously trading in the 125 to 128 range, according to Trace data, they continued to trade above parity. About $8.5 million bonds traded hands by late afternoon.

Illumina’s 0.5% convertible notes due 2021 were seen trading at 133 versus an equity price of $290.96, according to a market source. About $7.5 million of the bonds traded by late afternoon.

Illumina stock closed Monday at $289.24, a decrease of 3.95%.

However, Illumina stock rallied in after-hours trading after the company announced an earnings beat.

Illumina announced non-GAAP earnings per share of $1.43 for the second-quarter, beating analyst expectations of earnings per share of $1.11.

Chegg’s 0.25% convertible bonds were also dropping on an outright basis alongside stock ahead of its earnings announcements.

The 0.25% notes were quoted down more than 7 points to 112.55 at market close, according to a source. Chegg stock closed the day at $25.47, a decrease of 6.7%.

However, Chegg stock was also on the rebound in after-hours trading after the company also reported an earnings beat.

Chegg reported non-GAAP earnings per share of 12 cents in the second quarter, beating analyst expectations for earnings per share of 8 cents.

Mentioned in this article:

Chegg Inc. NYSE: CHGG

Illumina Inc. Nasdaq: ILMN

Palo Alto Networks Inc. NYSE: PANW

Twitter Inc. NYSE: TWTR

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