Morning Commentary: Splunk convertible notes remain in focus, level off in secondary

By Abigail W. Adams

Portland, Me., Sept. 22 – It was a relatively quiet start to the day in the convertibles secondary space as selling in equities and Treasuries subsided after the Fed’s higher-for-longer narrative rattled markets.

The Dow Jones industrial average was up 38 points, or 0.11%, the S&P 500 index was up 0.44%, the Nasdaq Composite index was up 0.88% and the Russell 2000 index was up 0.38% shortly before 11 a.m. ET.

There was $77 million in reported volume about one hour into the session with Splunk Inc.’s convertible notes still dominating the tape following news of Cisco Systems Inc.’s planned acquisition of the company.

The convertible notes leveled off after surging outright the previous session.

The 1.125% convertible notes due 2027 continued to trade on a 93-handle.

The notes were marked at 93.75 versus a stock price of $144.88 early in the session, according to a market source.

There was $13 million in reported volume.

Splunk’s 1.125% convertible notes due 2025 were trading just shy of 107 versus a stock price of $144.87, a source said.

There was $8 million in reported volume.

Splunk’s stock was trading at $144.98, an increase of 0.38%, shortly before 11 a.m. ET.

Splunk has been in focus since Cisco announced its acquisition of the company for $157 per share in an all-cash transaction with an equity valuation of $28 billion.

The notes will be taken out in the acquisition.

While hedge players of the 2025 notes stand to lose in the acquisition, hedge players of the 2027 notes will gain.

However, the deal is not expected to close for nine months to a year with the risk of the deal falling through factoring into the trading level of the notes, a source said.

Market players also have to assess the carry costs of holding their positions, the source said.

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