Convertibles trading surges post-CPI; Rivian, Western Digital gain; Beauty Health drops

By Abigail W. Adams

Portland, Me., Nov. 14 – The convertibles primary market was eerily quiet on Tuesday with many sources expecting to see some new deal activity given the strong market conditions.

“You would think today would be the day,” a source said.

Some activity is expected before the market goes dead ahead of the Thanksgiving Holiday in the United States next week.

However, the window of opportunity has narrowed to about three sessions with nothing expected after next Monday.

Meanwhile, the convertibles secondary space was strong on Tuesday as markets surged following the latest Consumer Price Index report.

The bond market was “screaming” with Treasury yields plunging double digits as markets priced in an end to rate hikes.

Equities surged in tandem with the small cap index outperforming.

The Dow Jones industrial average closed Tuesday up 490 points, or 1.43%, the S&P 500 index closed up 1.91%, the Nasdaq Composite index closed up 2.37% and the Russell 2000 index closed up 5.44%.

There was $78 million in reported volume about one hour into the session and $445 million on the tape in the late afternoon.

The on-the-run issues in the convertibles secondary space added about 0.5 point dollar-neutral with some pockets of the market up even more, a source said.

“It’s nice to see some green on the screen,” the source said.

Rivian Automotive Inc.’s convertible notes were among the most active issues of the session with the notes continuing to rise after the heavy selling of the previous week.

Western Digital Corp.’s recently priced 3% convertible notes due 2028 also continued to log gains.

While the broader market was strong, the convertibles secondary space was not without disaster.

Beauty Health Co.’s 1.25% convertible notes due 2026 cratered on an outright and dollar-neutral basis with stock more than cut in half on the heels of an earnings miss.

Rivian gains

Rivian’s convertible notes continued to gain in active trade as stock rebounded from the heavy selling of the previous week.

Rivian’s 4.625% convertible notes due 2029 added more than 3 points outright with stock up about 4%.

The notes were trading at 110.75 early in the session and were changing hands at 111.125 versus a stock price of $16.81 in the late afternoon.

The notes expanded about 0.5 point dollar-neutral on the move up, sources said.

There was $18 million in reported volume.

The 3.625% convertible notes due 2030 also added about 3 points outright.

They traded up to 96.5 early in the session and were seen at 95.625 versus a stock price of $16.70 in the late afternoon.

The notes added about 0.5 point to 1 point dollar-neutral on the move up, sources said.

There was $11 million in reported volume.

Rivian’s stock traded to a low of $16.57 and a high of $17.22 before closing at $16.90, an increase of 4.39%.

Stock added to the strong gains of the previous session with strong market conditions and news of Rivian’s latest capital raise buoying the stock.

Rivian announced on Monday plans to issue $15 billion in taxable bonds to fund the construction of a Georgia production plan.

Western Digital adds

Western Digital’s recently priced 3% convertible notes due 2028 continued to shoot higher in active trade on Tuesday.

The 3% notes added 2 points outright with stock up about 1.5%.

They were changing hands at 110.25 versus a stock price of $45.99 in the late afternoon.

The notes expanded on the move up, a source said.

There was $18 million in reported volume.

Western Digital’s stock traded to a low of $45.70 and a high of $46.48 before closing at $45.87, up 1.53%.

The 3% notes have put in a strong aftermarket performance since the $1.6 billion issue priced at par on Oct. 31.

Beauty Health plummets

While the market was strong, earnings-related news continued to spark fire-sales in certain issues.

Beauty Health’s 1.25% convertible notes due 2026 cratered on Tuesday with stock more than cut in half after a large earnings miss.

The 1.25% convertible notes fell 15 points outright with stock down about 60%.

The notes were trading at 58.25 early in the session.

They were changing hands at 59.5 versus a stock price of $1.63 in the late afternoon.

The notes carry a conversion premium of over 1,000% and have no theoretical delta.

However, the notes contracted 10 points dollar-neutral on a light hedge of about 20%, a source said.

There was $17 million in reported volume in the late afternoon with outright and hedge accounts both dumping the issue.

Beauty Health’s stock traded to a high of $1.76 and a 52-week low of $1.35 before closing at $1.39, a decrease of 64.36%.

The company’s capital structure collapsed after it announced losses per share of 56 cents versus analyst expectations for earnings per share of 7 cents.

Revenue was $97.4 million versus analyst expectations for revenue of $116.2 million.

The company also delayed the release of its 10-Q and announced the departure of its CEO.

Market players misjudged the credit with the company’s stock buyback program leading some to believe the company’s fundamentals were better than they were, a source said.

Mentioned in this article:

Beauty Health Co. Nasdaq: SKIN

Rivian Automotive Inc. Nasdaq: RIVN

Western Digital Corp. Nasdaq: WDC

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