Herbalife convertibles crater on earnings; PENN Entertainment lower; Uber adds to gains

By Abigail W. Adams

Portland, Me., Feb. 15 – While the convertibles primary market remained dormant for its second consecutive week, the secondary space was active with earnings-related volatility continuing to spark large movements in the space.

Equities were mixed early in the session but turned positive as the session progressed with the small cap index again eliminating losses from a 4% drop on Tuesday.

The Dow Jones industrial average closed Thursday up 349 points, or 0.91%, the S&P 500 index closed up 0.58%, the Nasdaq Composite index closed up 0.30% and the Russell 2000 index closed up 2.36%.

There was $100 million in reported convertibles trading volume about one hour into the session and $469 million on the tape in the late afternoon.

Herbalife Nutrition Ltd.’s 4.25% convertible notes due 2028 were dominating activity with the notes cratering on an outright and dollar-neutral basis on the heels of earnings.

The company’s soon-to-mature 2.625% convertible notes due March 15, 2024 were unchanged following the report with little concern about the company’s ability to redeem the notes.

However, Herbalife’s earnings report raised doubts about its longer-dated debt.

PENN Entertainment Inc.’s 2.75% convertible notes due 2026 were down outright in active trade as stock sank after an earnings disappointment.

However, Shake Shack Inc.’s 0% convertible notes due 2028 made strong gains as stock soared after an earnings beat.

Meanwhile, Uber Technologies Inc.’s convertible notes continued to improve in heavy volume after the company announced its first share buyback program.

Herbalife craters

Herbalife’s 4.25% convertible notes cratered on an outright and dollar-neutral basis after the company’s earnings raised investor concerns.

The 4.25% notes sank 23 points outright with stock plunging about 35%.

The notes were trading at 76.875 versus a stock price of $7.15 early in the session.

They were changing hands at 78.75 versus a stock price of $8.01 in the late afternoon.

The notes contracted 4 to 5 points dollar-neutral.

“This is the largest loser we’ve had in the space for a while,” a source said.

There was $25 million in reported volume.

Herbalife’s soon-to-mature 2.625% convertible notes due March 15, 2024 were unchanged in light volume with the notes continuing to trade at 99.625 with the yield about 7%.

There was little concern about the company’s ability to cover the 2.625% notes upon their maturity.

However, the company’s earnings raised doubts about its longer-duration debt.

Herbalife’s stock traded to a new 52-week low of $6.68 and a high of $9.15 before closing at $8.03, a decrease of 31.66%.

While earnings were mixed with the company beating on the top line, bottom line results were much lower than anticipated.

Herbalife reported earnings per share of 28 cents versus analyst expectations for earnings of 39 cents.

Revenue was $1.22 billion versus analyst expectations for revenue of $1.19 billion.

PENN’s earnings

PENN’s 2.75% convertible notes due 2026 fell outright alongside stock after a large earnings miss.

The 2.75% notes were down 9.5 points outright with stock off about 15%.

The notes were changing hands at 110.125 versus a stock price of $19.08 in the late afternoon, according to a market source.

There was $8 million in reported volume.

PENN’s stock traded to a low of $18.89 and a high of $20.46 before closing at $19.38, a decrease of 13.84%.

Stock sank after a large earnings miss with the company reporting losses per share of $1.75 versus the losses per share of 46 cents expected.

Revenue was $1.4 billion versus the $1.53 billion expected.

Shake Shack gains

While volume was light, Shake Shack’s 0% convertible notes due 2028 made large gains on an outright and dollar-neutral basis after an earnings beat.

The 0% convertible notes gained 6 points outright with stock up almost 25%.

The notes shot up to an 88-handle after closing the previous session on an 82-handle.

The convertibles expanded 1 point dollar-neutral on the move up.

The notes trade on a light delta.

However, the convertible notes participated nicely in the stock move, a source said.

Shake Shack’s stock traded to a low of $91 and a high of $98.85 before closing at $98.40, up 25.73%.

Stock surged after the restaurant chain reported earnings per share of 2 cents versus the 1 cent expected.

Revenue was $286.24 million versus the $280.99 million expected.

Uber improves

Uber’s convertible notes continued to improve on an outright and dollar-neutral basis in active trade as positive momentum from the company’s new share buyback program carried over to another session.

Uber’s 0% convertible notes due 2025 added another 2 points with stock up another 3%.

The 0% notes were trading at 115.125 versus a stock price of $81.19 in the late afternoon, according to a market source.

There was $15 million in reported volume.

Uber’s 0.875% convertible notes due 2028 added another 2.5 points outright.

They were trading at 128.25 versus a stock price of $81.47 in the late afternoon.

There was $12 million in reported volume.

The notes continued to improve on their ride up.

Uber’s stock traded to a low of $78.28 and a high of $81.86 before closing at $81.39, up 2.83%.

The notes made large gains the previous session after the company announced its board had authorized a share buyback program of up to $7 billion.

Mentioned in this article:

Herbalife Nutrition Ltd. NYSE: HLF

PENN Entertainment Inc. Nasdaq: PENN

Shake Shack Inc. NYSE: SHAK

Uber Technologies Inc. NYSE: UBER

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