Convertibles volatile; Block notes mixed on Hindenburg report; Coinbase trades lower

By Abigail W. Adams

Portland, Me., March 23 – It was an active day in the convertibles secondary space on Thursday with topical news pushing outstanding issues into the limelight as equity volatility kept market players on their toes.

“There’s plenty to do today,” a source said.

Buyers were active in the morning as equity indexes rebounded from Wednesday’s steep post-Fed sell-off.

However, markets turned late in the session with heavy selling briefly pushing indexes into negative territory although they pared their losses to close the day mixed.

The Dow Jones industrial average closed Thursday up 75 points, or 0.23%, the S&P 500 index closed up 0.30%, the Nasdaq Composite index closed up 1.01% and the Russell 2000 index closed down 0.41%.

There was $110 million in reported volume about one hour into the session and $478 million on the tape about one hour before the market close.

While selling took hold of equities late in Thursday’s session, the secondary space remained better to buy, a source said.

Block Inc. (formerly known as Square Inc.) was the name of the day on Thursday with its convertible notes mixed as stock cratered on a short-seller report from Hindenburg Research.

While Block’s longer duration convertible notes were weaker, its soon-to-mature 0.5% convertible notes due May 15, 2023 made large gains with little doubt about the company’s ability to pay off the notes.

Coinbase Global Inc.’s 0.5% convertible notes due 2026 were under pressure as stock cratered with the company facing possible SEC violations.

Silicon Laboratories Inc.’s 0.625% convertible notes due 2025 saw heavy volume after the company called the notes.

Block in focus

Block was the name of the day on Thursday after Hindenburg Research, the short-seller responsible for the downfall of the Adani Group and Nikola Corp., took aim at the fintech company.

Block’s four tranches of convertible notes accounted for almost one-quarter of the total volume in the space with the notes trading mixed.

Block’s 0.25% convertible notes due 2027 were the most active of the tranches.

The 0.25% convertible notes were down about 2 points outright.

The notes were seen at 74.75 versus a stock price of $60.27 early in the session, according to a market source.

They were trading at 74.875 in the late afternoon.

The yield was about 6.75%.

There was $38 million in reported volume.

Block’s 0.125% convertible notes due 2025, which carry a more balanced profile, were down about 4 points outright.

The notes were changing hands at 92.5 in early trade and were around 93 heading into the market close.

There was $26 million in reported volume.

The 0% convertible notes due 2026 were largely unchanged with the notes holding at their bond floor, a source said.

The 0% notes traded at 80.375 with a yield of 7.2% early in the session, a source said. They were wrapped around 81 with a yield of 6.9% in the late afternoon.

There was $25 million in reported volume.

The notes were unchanged to weaker on hedge, a source said.

While Block’s longer duration notes were weaker outright and on hedge, Block’s soon-to-mature 0.5% convertible notes due May 15, 2023 made large gains.

The notes were trading just north of par for a yield to maturity of 0.125% early in the session.

They rose to a 101 handle as the session progressed and were changing hands at 101.625 versus a stock price of $61.79 in the late afternoon.

They expanded about 1 point dollar-neutral, a source said.

While Hindenburg Research has taken aim at Block, there is little doubt about the company’s ability to pay off the debt.

“They have $5 billion in cash. They’re cash to debt ratio is fine,” a source said.

Square’s stock traded as low as $56.50 early in Thursday’s session but pared losses to trade as high as $65.75 before closing at $61.88, a decrease of 14.82%.

Coinbase under pressure

Coinbase’s 0.5% convertible notes due 2026 were under pressure on Thursday following news the SEC may take legal action against the crypto exchange.

The 0.5% convertible notes sank 5 points outright with stock off almost 14%.

The notes were trading at 63.5 versus a stock price of $69.42 in the late afternoon.

They contracted 2 to 3 points dollar-neutral.

There was $10 million in reported volume.

Coinbase’s stock traded to a high of $70 and a low of $61.50 before closing at $66.30, a decrease of 14.5%.

Coinbase announced post-close on Wednesday that the SEC had issued a Wells notice informing the crypto exchange of its intention to bring enforcement action against the company.

The SEC and Coinbase have long been at odds over the tokens and products offered by Coinbase, which the SEC claims are securities that need to be registered.

Silicon’s call

Silicon Laboratories’ 0.625% convertible notes due 2025 saw heavy volume on Thursday after the company announced it would redeem the notes on June 30.

The 0.625% notes were changing hands at 145.5 versus a stock price of $170.97 in the late afternoon, according to a market source.

There was $13 million in reported volume.

Silicon Laboratories’ stock traded to a high of $174.29 and a low of $161.81 before closing at $173, up 0.17%.

The 0.625% notes were active after the company announced it would redeem the notes on June 30 with holders able to convert the notes until June 16.

The company priced the $535 million issue in May 2020.

Mentioned in this article:

Block Inc. NYSE: SQ

Coinbase Global Inc. Nasdaq: COIN

Silicon Laboratories Inc. Nasdaq: SLAB

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