Morning Commentary: Herbalife convertible notes crater in early trading on earnings

By Abigail W. Adams

Portland, Me., Feb. 15 – The convertibles secondary space remained active on Thursday with earnings-related volatility continuing to spark large movements in the space.

Equities were mixed early in the session with the small cap index again outperforming as it nearly eliminated losses from a 4% drop on Tuesday.

The Dow Jones industrial average was up 162 points, or 0.42%, the S&P 500 index was up 0.12%, the Nasdaq Composite index was down 0.27% and the Russell 2000 index was up 1.33% shortly before 11 a.m. ET.

There was $100 million in reported convertibles trading volume about one hour into the session with Herbalife Nutrition Ltd.’s 4.25% convertible notes due 2028 dominating activity.

The 4.25% convertible notes cratered outright as stock dived after the company reported earnings.

The 4.25% notes sank 23 points outright with stock plunging about 35%.

The notes were trading at 76.875 versus a stock price of $7.15 early in the session, according to a market source.

There was $15 million in reported volume.

Herbalife’s stock traded to a 52-week low of $6.68 early in the session and was trading at $8.01, a decrease of 31.82% shortly after 11 a.m. ET.

While earnings were mixed with the company beating on the top line, bottom line results were much lower than anticipated.

Herbalife reported earnings per share of 28 cents versus analyst expectations for earnings of 39 cents.

Revenue was $1.22 billion versus analyst expectations for revenue of $1.19 billion.

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