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Morning Commentary: Upstart convertible notes in focus early, tank on earnings warning
By Abigail W. Adams
Portland, Me., July 8 – It was a quiet start to the day in the convertibles secondary space as equities again wavered between gains and losses as the market digested the latest jobs report and gaged its impact on the Federal Reserve’s rate hike schedule and its significance as a recession indicator.
After opening the day with losses, equity indexes climbed into positive territory with the Dow Jones industrial average up 71 points, or 0.22%, the S&P 500 index up 0.08%, the Nasdaq Composite index up 0.15% and the Russell 2000 index up 0.49% shortly before 11 a.m. ET.
There was $60 million of convertibles trading on the tape about one hour into the session with few names seeing concentrated trading activity albeit with one exception.
Upstart Holdings Inc.’s 0.25% convertible notes due 2026 were in focus with the notes tanking after the company issued a dire second-quarter earnings warning.
The 0.25% notes fell 6 points outright to 53.625 early in the session.
The yield on the notes was 16%. “The yield is 16%, but is the credit worth it?” a source said.
There was $6 million in reported volume.
The notes have long been a yield play with the conversion premium over 400%, a source said.
However, Upstart’s stock led losses in equity markets with stock changing hands at $26.94, a decrease of 20.27%, shortly before 11 a.m. ET.
Stock tanked after the lending platform warned second-quarter earnings would be worse than expected with the company now expecting a loss of $27 million to $31 million versus previous guidance for breakeven to a loss of $4 million.
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