Five9 convertible notes in focus, gain; Arrival yield cracks 75%; Lyft down outright

By Abigail W. Adams

Portland, Me., Nov. 8 – The convertibles primary market remained dormant on Tuesday with prospects for new issuance low with markets fragile and uncertainty high.

Equity indexes saw another whipsaw session with indexes giving back the strong gains made early in the session and dropping into negative territory and with Bitcoin in freefall following the surprise sale of crypto-exchange FTX to Binance.

While markets plummeted in the early afternoon, buyers returned and pushed most indexes back into positive territory by the close.

The Dow Jones industrial average closed Tuesday up 334 points, or 1.02%, the S&P 500 index closed up 0.56%, and the Nasdaq Composite index closed up 0.49%.

However, the Russell 2000 index was unable to hold its late-day gains and slipped back to the red in the final minutes of trading to close down 0.05%.

There was $572 million in reported volume on Tuesday with earnings-related volatility continuing to be the driving force for activity in the secondary space.

Five9 Inc.’s 0.5% convertible notes due 2025 were the name of the day with the notes gaining on an outright and dollar-neutral basis as stock surged following earnings.

Arrival SA’s already distressed 3.5% convertible notes due 2026 plummeted with the yield cracking 75% as the EV start-up issued a going-concern statement with its third-quarter earnings.

Lyft Inc.’s 1.5% convertible notes due 2025 were down outright but unchanged dollar-neutral as stock sank double digits on an earnings disappointment.

Earnings results have generated outsized moves in convertible issuers’ equity, both to the downside and upside.

However, the portfolios of balanced convertible notes have expanded amid the volatility, a source said.

And convertible arbitrage players, while also facing losses, have outperformed in 2022.

As most asset classes stare down with losses in the double digits, the HFRI RV convertible arbitrage index is down only 2.7% year to date.

Five9 gains

Five9’s 0.5% convertible notes were on the rise in heavy volume on Tuesday as stock surged double digits post-earnings.

The 0.5% convertible notes gained about 4 points outright with stock up almost 15%.

The notes were changing hands at 88.25 early in the session and traded at 88.75 versus a stock price of $53.61 in the late afternoon.

The convertibles improved on a dollar-neutral, or hedged, basis on the move up, a source said.

There was $37 million in reported volume.

After falling double digits pre-open, Five9’s stock surged double digits as the market responded to earnings.

Five9’s stock traded to a low of $48.07 and a high of $56.76 before closing the day at $54.10, an increase of 15.11%.

The cloud software company’s stock initially fell post-earnings after full-year revenue guidance was cut to $774.5 million to $775.5 million from $780.5 million to $782.5 million and projected earnings per share was reduced to $1.35 to $1.37 from $1.38 to $1.40.

However, the reduced guidance was in line with expectations, and Five9 delivered strong third-quarter earnings with 39 cents per share versus the 36 cents expected on revenue of $198.34 million versus the $196.39 million expected.

Arrival sinks

Arrival’s already distressed 3.5% convertible notes due 2026 plummeted double digits on Tuesday as the company issued a going-concern warning with its third-quarter financial results.

The 3.5% notes sank 20 points outright to close Tuesday at 11.75 with the yield jumping to 75.25%.

There was $9 million in reported volume.

Arrival’s stock traded to a high of 49 cents and a low of 36 cents before closing the day at 38 cents, a decrease of 35.87%.

Arrival’s convertible notes were trading in the low 30s heading into earnings with the market warry about the EV startup’s future viability.

The concern was justified with Arrival announcing that it did not have enough cash to fund operations for the next 12 months.

Losses widened with adjusted EBITDA negative $73.3 million in the third quarter compared to a negative EBITDA of $45.9 million in the third quarter of 2021.

Lyft down outright

Lyft’s 1.5% convertible notes due 2025 were weaker outright but unchanged on swap as stock sank double digits post-earnings.

The 1.5% notes fell 2.375 points outright with stock off more than 20%.

The convertibles were changing hands at 85.5 versus a stock price of $10.82 heading into the market close, according to a market source.

The yield was just shy of 8%.

There was $17 million in reported volume.

Lyft’s stock traded to a low of $10.62 and a high of $12.19 before closing the day at $10.90, a decrease of 22.91%.

Lyft reported adjusted net income of 10 cents per share versus analyst expectations for 8 cents per share.

Revenue was $1.05 billion versus the $1.06 billion expected.

However, stock plunged with revenue forecasts coming in below expectations and the company reporting a slowdown in user growth.

Mentioned in this article:

Arrival SA Nasdaq: ARVL

Five9 Inc. Nasdaq: FIVN

Lyft Inc. Nasdaq: LYFT

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