Morning Commentary: Twitter in focus on anemic morning in convertible secondary

By Abigail W. Adams

Portland, Me., July 11 – Trading activity in the convertibles secondary space was anemic early Monday with few names on the tape as equity markets launched the day in the red.

The Dow Jones industrial average was down 155 points or 0.5%, the S&P 500 index was lower by 1.15%, the Nasdaq Composite index was off by 2.03% and the Russell 2000 index had decreased 1.86% shortly before 11 a.m. ET.

Twitter Inc.’s 0% convertible notes due 2026 were in focus following news Elon Musk was attempting to terminate his $44 billion takeover agreement with the social media company.

The notes were lower on the news although the takeover agreement has long been in doubt given the convertible notes’ and Twitter stock’s trading levels, a source said.

The 0% convertible notes fell 2.5 points outright.

They were changing hands just shy of 86.5 versus a stock price of $34.78 early in the session, according to a market source.

There was $5 million in reported volume, a surprisingly low amount given the news, a source said.

Twitter stock was changing hands at $34.28, a decrease of 6.97%, shortly before 11 a.m. ET.

Musk announced post-close Friday that he was terminating his deal with Twitter, claiming the company was in violation of the agreement.

Twitter announced it intends to pursue legal action against Musk to enforce the agreement.

The news is the latest development in Musk’s drama-filled takeover attempt of the company.

While Twitter’s capital structure had wild swings to the upside around Musk’s initial takeover bid and subsequent merger agreement in April, the company’s equity and convertible notes sold off in May with questions raised about the deal’s financing and stalling from Musk.

Twitter’s stock and convertible notes leveled off in June with the 0% notes wrapped around 89.

If the deal had gone forward, there would have been a par put on the long-busted convertible notes, which carry a conversion premium of 280%.

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