Convertible investors ‘cautious’ amid SVB fallout, liquidity concerns; opportunists eye market

By Abigail W. Adams

Portland, Me., March 13 – The convertibles secondary space was soft but stable as SVB Financial Group’s spectacular implosion continued to reverberate through global financial markets.

Treasuries skyrocketed, credit spreads widened and equities struggled to find direction on Monday after regulators took emergency measures to stabilize the U.S. banking system.

Convertible investors were “cautious,” with many accounts working through the weekend to evaluate their portfolios, a source said.

Silicon Valley Bank catered to tech startups, many of which populate the convertibles market.

While there were no desperation sales hitting the market on Monday, there was selling in highly liquid names to raise cash with liquidity a growing concern, a source said.

“It’s easier to raise cash selling what you can than what you cannot but have to,” the source said.

Liquidity has already dried up for some of the more speculative tech names, a source said.

SoFi Technologies Inc.’s 0% convertible notes due 2026 continued to crater dollar-neutral on Monday despite having no exposure to Silicon Valley Bank.

While the convertibles secondary space was soft on Monday, opportunists were eyeing the market.

Investors were ready to step in with private financing deals for some of the companies with SVB exposure, although federal intervention negated their need, a source said.

The implosion

SVB’s dramatic implosion was sparked after disclosing a $1.8 billion loss on the liquidation of its for-sale securities portfolio.

The announcement coincided with the launch of a $2.25 billion capital raise that included a $500 million offering of $50-par three-year depositary shares representing a 1/20th interest in $1,000-par series F mandatory convertible preferred stock.

The liquidity fears the announcement sparked cumulated in a classic bank run.

SVB’s attempted capital raise was launched post-close Wednesday, March 8. The bank was under FDIC receivership by the early afternoon on Friday, March 10.

Banking regulators have taken emergency measures to guarantee all deposits at Silicon Valley Bank to stabilize the banking sector.

However, protection would not be extended to investors, president Joe Biden said.

“I think everyone’s really glad the deal didn’t get done,” a source said.

Exposure

Convertible issuers Etsy Inc., BILL Holdings, Inc., Sunnova Energy International Inc., Sunrun Inc. and Roblox Corp. have all disclosed their exposure to Silicon Valley Bank.

Etsy’s convertible notes were largely unchanged in active trade on Monday while Bill.com’s 0% convertible notes due 2027 were lower.

Etsy’s 0.125% convertible notes due 2026 were changing hands at 137.325 versus a stock price of $105.35 in the late afternoon.

There was $11 million in reported volume.

Etsy’s 0.125% convertible notes 2027 were seen at 88.125 versus a stock price $105.44 in the late afternoon.

There was $6 million in reported volume.

Etsy’s 0.25% convertible notes due 2028 were trading at 79.375 versus a stock price of $104.97.

There was $5 million in reported volume.

Etsy’s stock traded to a high of $106.37 and a low of $99.24 before closing at $103.71, a decrease of 2.14%.

Bill.com’s 0% convertible notes due 2027 sank more than 1 point as stock pared its losses from the previous session and rose about 8%.

The 0% convertible notes were changing hands at 76.75 versus a stock price of $74.60 in the late afternoon.

Bill.com’s stock traded to a low of $68.30 and a high of $76.10 before closing at $73.82, up 7.92%.

Liquidity

SoFi’s already beleaguered 0% convertible notes due 2026 continued to fall as liquidity dried up for the more speculative tech names in the market, source said.

The 0% convertible notes due 2026 were changing hands at 68.25 versus a stock price of $5.47 in the late afternoon.

There was $13 million in reported volume.

The 0% notes have contracted several points over the past three sessions, a source said.

SoFi’s stock traded to a low of $5.10 and a high of $5.57 before closing at $5.49, down 1.61%.

Stock is down about 18% since last Thursday when SVB went into free fall.

SoFi has no personal exposure to SVB.

However, the online bank and personal finance company was under pressure alongside some of the more speculative credits in the market.

Liquidity is now a primary concern with bids for names like Arrival SA gone.

“10 days ago, these names had a bid,” a source said.

© 2015 Prospect News.
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