Snap convertibles fall as earnings drag down markets; Akamai active on takeover rumors

By Abigail W. Adams

Portland, Me., July 22 – It a quiet day in the convertibles secondary space as selling pressure returned to equities with Snap Inc.’s earnings disappointment dragging down broader markets.

While mixed at the open, equity indexes were dragged into the red as recession jitters returned following the latest batch of earnings.

The Dow Jones industrial average closed down 138 points, or 0.43%, the S&P 500 index closed down 0.93%, the Nasdaq Composite index closed down 1.87% and the Russell 2000 index closed down 1.62%.

Despite the downturn in equities on Friday, indexes closed the week with gains, and while uncertainty remains high, the convertibles space remained better to buy.

“People are getting comfortable again,” a source said.

While the Federal Reserve is poised to announce another historic rate increase at its meeting next week, “a lot of the jockeying has already been done,” a source said.

Volume remained thin on Friday with $393 million on the tape about one hour before the market close.

While the broader convertibles secondary space was largely unchanged amid the sell-off in equities, Snap’s convertible notes were under pressure with the notes lower on an outright and dollar-neutral basis as stock got pummeled post-earnings.

Akamai Technologies Inc.’s 0.125% convertible notes due 2025 were active as the company became the subject of takeover speculation.

1Life Healthcare Inc.’s (One Medical) 3% convertible notes due 2025 were weaker on Friday with investors questioning the timeline for Amazon’s acquisition.

Snap’s earnings

Snap once again put a drag on broader markets with its convertible notes and stock falling following disappointing earnings.

Snap’s convertible notes fell on an outright and dollar-neutral basis amid the sell-off in stock.

Snap’s 0.125% convertible notes due 2028 were the social media company’s most actively traded tranche and the most active issue during Friday’s session.

The notes fell 5 points outright to a new all-time low.

The notes were marked at 67.5 bid, 68 offered early in the session, a source said. By the late afternoon, they were changing hands just shy of 66 versus a stock price of $9.99.

The notes still move on a heavy hedge despite their lower dollar price due to the company’s credit and the long duration of the notes.

The theoretical delta for the notes would be 40% to 60% based on the model used.

Some sources were playing them on a 30% to 40% delta heading into Friday’s session.

The notes were seen contracted about 0.5 point dollar-neutral.

Snap’s 0.75% convertible notes due 2025 sank 16 points outright.

The notes were changing hands at 89.625 versus a stock price of $10.10 in the late afternoon.

The notes also contracted dollar-neutral.

Snap’s 0% convertible notes due 2027 were off 3 points outright.

They were seen at 69.875 versus a stock price of $10.00 in the late afternoon.

There was $12 million in reported volume.

Snap’s stock traded to a high of $11.11 and a low of $9.91 before closing the day at $9.96, a decrease of 39.19%.

Stock sank after the social media company released earnings, which reflected a significant slowdown in growth and a dire warning about advertising revenue.

Snap reported losses per share of 2 cents versus analyst expectations for losses of 3 cents. Revenue was $1.11 billion versus analyst expectations for $1.13 billion.

The company declined to issue forward guidance.

Akamai’s takeover rumor

Akamai’s 0.125% convertible notes due 2025 were active with the cloud delivery platform the latest subject of takeover speculation.

The notes were slightly strong on Friday with stock largely unchanged.

They were changing hands at 113.375 heading into the market close.

There was $17 million in reported volume.

Akamai’s stock traded to a high of $95.15 and a low of $93.04 before closing the day at $94.13, a decrease of 0.021%.

While Akamai’s convertible notes were relatively unchanged on Friday, they have gained about 5 points outright with stock up about 5% since Thursday when takeover chatter began.

News circulated on Thursday that a private equity firm was attempting to secure financing for a takeover bid.

One Medical weakens

One Medical’s 3% convertible notes due 2025 were weaker on Friday after surging the previous session on news Amazon would acquire the company.

The notes were down about 0.625 point outright to trade at 97.875 in the late afternoon.

One Medical’s stock traded to a high of $17.28 and a low of $17.08 before closing the day at $17.15, a decrease of 0.58%.

The 3% convertible notes surged 11 points outright and 7 points dollar-neutral on Thursday following news Amazon would acquire One Medical for $18.00 per share, including debt, in an all-cash transaction.

While the notes will be taken out in the transaction, investors may be questioning the timing of the closing of the deal, which must receive regulatory approval.

Mentioned in this article:

1Life Healthcare Inc. Nasdaq: ONEM

Akamai Technologies Inc. Nasdaq: AKAM

Snap Inc. NYSE: SNAP

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