Cloudflare convertibles fall outright, flat dollar-neutral; Snap pressured; PPL active

By Abigail W. Adams

Portland, Me., April 28 – While the convertibles secondary space saw another quiet session with investment-grade issues driving volume, earnings-related volatility continued to push outstanding issues into the spotlight.

Equity markets opened lower but brushed off losses to extend the strong gains from the previous session as investors weighed mixed earnings and macro data, which continued to signal high inflation.

The Dow Jones industrial average closed Friday up 272 points, or 0.80%, the S&P 500 index closed up 0.83%, the Nasdaq Composite index closed up 0.69% and the Russell 2000 index closed up 0.94%.

While the tone in the broader market continued to improve, earnings continued to drag down certain issues.

Cloudflare Inc. and Snap Inc. were in the crosshairs on Friday with the companies’ stocks leading losses in equity markets.

While Cloudflare’s 0% convertible notes due 2026 fell outright, they were largely unchanged dollar-neutral.

However, Snap’s convertible notes tumbled on an outright and dollar-neutral basis.

While earnings continued to jumpstart activity in some outstanding issues, trading volume remained driven by the usual suspects, i.e., the investment-grade issues of 2023.

PPL Corp.’s 2.875% exchangeable notes due 2028 (Baa1/BBB+) saw renewed attention on Friday after a largely quiet week with the notes unchanged in heavy volume.

Cloudflare falls

Cloudflare’s 0% convertible notes due 2026 were in focus on Friday with the cybersecurity firm’s stock among the top losers in equity markets.

The high-premium notes fell 2.25 points outright with stock off more than 25%.

The notes traded in a tight range around 82.25 throughout the session.

The notes were moving in line dollar-neutral on a theoretical hedge of about 30%, a source said.

There was $16 million in reported volume.

Cloudflare’s stock traded to a low of $43.01 and a high of $47.10 before closing at $47.05, a decrease of 21.03%.

Cloudflare had a strong quarter with earnings per share of 8 cents versus analyst expectations for earnings per share of 3 cents on revenue of $290 million, which was in line with expectations.

However, Cloudflare downwardly revised its revenue guidance for 2023 to $1.28 billion from prior guidance of $1.33 billion to $1.34 billion, triggering a sell-off in the stock.

Snap under pressure

Snap’s convertible notes were under pressure on an outright and dollar-neutral basis with the social media company’s stock also among the largest losers in equity markets.

The 0.75% convertible notes due 2026 sank 3.5 points outright.

The notes were changing hands at 86.75 early in the session and continued to move lower as the session progressed. They were trading at 86.375 in the late afternoon.

The 0.75% notes contracted about 1.25 points dollar-neutral, a source said.

The 0.75% notes were the most active of Snap’s tranches with $10 million in reported volume.

However, Snap’s 0.125% convertible notes due 2028 and 0.25% convertible notes due 2025 were also lower.

The 0.25% convertible notes shed 2 points to trade down to 91.625.

The 0.125% convertible notes fell 1 point to 69.5 with the yield now 7.875%, according to a market source.

Snap’s stock traded to a low of $8.41 before closing at the intersession high of $8.71, a decrease of 17.05%.

Snap reported mixed earnings with earnings per share of 1 cent, versus the loss per share of 1 cent expected, on revenue of $989 million versus the $1.01 billion expected.

PPL active

PPL’s 2.875% exchangeable notes due 2028 saw renewed attention on Friday after thin trading for the past two sessions.

However, while the notes were active, they saw little movement in price.

The notes remained wrapped around 100.5, a source said.

There was $14 million in reported volume.

PPL’s stock traded to a low of $28.58 and a high of $28.88 before closing at $28.72, off 0.17%.

Mentioned in this article:

Cloudflare Inc. NYSE: NET

PPL Corp. NYSE: PPL

Snap Inc. NYSE: SNAP

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