Morning Commentary: Convertibles market quiet early; Welltower notes drop below par

By Abigail W. Adams

Portland, Me., May 22 – The convertibles primary market was quiet early Monday with sources mixed about the prospects for new issuance over the week.

While the investment-grade primary market continued to unleash deals at a dizzying pace, the calendar for the convertibles primary market was heard to not be as robust as previously anticipated.

Continued uncertainty in financial markets and the stock prices of small cap companies, which account for the majority of convertible issuance, continue to keep issuers at bay.

While the mega cap companies have rallied substantially in 2023, small cap stocks have not participated. Pitching an equity-linked capital raise to a company with stock at a depressed levels is a tough sell, sources say.

Meanwhile, it was an equally quiet morning in the convertibles secondary space with equity indexes mixed as market players eye debt-ceiling negotiations.

The Dow Jones industrial average was down 103 points, or 0.31%, the S&P 500 index was up 0.05%, the Nasdaq Composite index was up 0.42% and the Russell 2000 index was up 0.58% shortly before 11 a.m. ET.

There was $38 million in reported volume about one hour into the session with no name seeing more than $5 million in reported volume.

Welltower Inc.’s 2.75% convertible notes due 2028 (Baa1/BBB+) were weaker with the notes dropping below par.

The 2.75% notes were off about 0.375 point outright to trade just north of 99.875 early in the session, according to a market source.

There was $4 million in reported volume.

Welltower’s stock was changing hands at $77.05, an increase of 0.71%, shortly before 11 a.m. ET.

Welltower’s 2.75% convertible notes have largely traded on a 101-handle since the $1.04 billion issue priced at par on May 8.

However, the notes dropped to a par handle last Friday.

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