Morning Commentary: Upstart convertible notes in focus, jump outright post-earnings

By Abigail W. Adams

Portland, Me., Feb. 16 – It was a relatively quiet morning in the convertibles secondary space on Wednesday – with the exception of one name.

Upstart Holdings Inc.’s 0.25% convertible notes due 2026 dominated the tape, accounting for nearly half of the total $113 million in reported secondary trading volume about one hour into Wednesday’s session.

The notes surged on an outright basis and saw a large dollar-neutral expansion following a large earnings beat.

The 0.25% notes climbed about 9 points outright with stock up 30%.

They were changing hands just shy of 94.5 versus a stock price of $142.60 early in the session, according to a market source.

The notes expanded between 1.75 points and 2.5 points dollar-neutral based on the delta played, a source said.

There was $43 million in reported volume.

Upstart’s stock jumped to $143.11, an increase of 35.12%, shortly before 11 a.m. ET.

Stock surged following a large earnings beat and an upbeat forecast that came in above expectations.

The company reported earnings per share of 89 cents versus analyst expectations for earnings of 51 cents.

Revenue was $304.85 million versus the $262.85 million expected. The company also beat expectations with its forward guidance and announced a $400 million stock buyback.

Upstart was an outsider on another heavy day for risk assets with equity indexes again turning negative amid continued concern over the Ukrainian situation and the Federal Reserve’s rate hike schedule.

The Dow Jones industrial average was down 242 points, or 0.69%, the S&P 500 index was down 0.69%, the Nasdaq Composite was down 0.98%, and the Russell 2000 index was down 0.20% shortly before 11 a.m. ET.

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