Convertibles lower outright with shares; YY bonds offered; FireEye unchanged on swap

By Rebecca Melvin

New York, Oct. 2 – The U.S. convertibles market continued to trade weakly on Wednesday with outright investors holding mostly steady as shares slipped and with hedged investors taking advantage of pricing opportunities by nibbling around the edges. But the market overall continued to feel the impact of last month’s record issuance and the stumble in U.S. stocks amid trade and economic growth worries to start October.

U.S. stocks fell sharply on Wednesday, with the Dow Jones industrial average dropping 494.42 points, or 1.9%, to 26,078.68. In addition, the S&P 500 stock index dropped 54 points, or 1.8% to 2,887.61, and the Nasdaq stock market lost 1.6% to 7,785.25.

Convertibles market players were offering YY Inc.’s convertibles early on Wednesday, a New York-based trader said. YY priced an $850 million offering in two tranches in June. The $425 million YY 0.75% convertibles due 2025 traded at 90.58, which was down 1.5 points, on the day and down from 97.375 on Sept. 23. The $425 million of YY 1.375% convertibles due 2026 traded last at 90.45, which was down 0.9 point on the day and down from 91.82 on Sept. 30. The American Depositary Shares of the Guangzhou, China-based global social media platform were down $2.17, or 3.8% at $54.99.

YY was pulled into trade along with other Chinese names on Friday amid fears after news that the Trump administration was considering delisting the ADS of Chinese companies on U.S. exchanges.

One source said that the threat should not be considered seriously. “You can throw that out there as a trial balloon, but I don’t think that it is legal. It would have to be presented as a policy. There would have to be a comment period. I don’t think it’s legal.”

FireEye Inc. stock was halted during the session after a headline that the cybersecurity firm is retaining Goldman Sachs Group Inc. for a potential sale.

FireEye’s 0.875% convertibles due 2024 lifted 2 points on an outright basis from trades earlier in the session, and they were up a point from the previous session to 94.79. But they were unchanged on a dollar-neutral basis, or on swap. Earlier in the session the convertibles were down 0.9 point at 92.9.

The company’s shares spiked on the news and eventually closed up 62 cents, or 4.7%, to $13.84.

The FireEye talks are in early stages, and private equity firms appear to be the most likely buyer. In July, FireEye reported a second-quarter loss and cut its 2019 revenue forecast on non-renewal of cyber security subscriptions.

NXP Semiconductors NV’s 1% convertibles, which are due on Dec. 1, 2019, were trading a lot, a New York-based market source said. “It’s a liquid name on the back of increased volatility.”

The NXP notes were active at 108 and change, which was off by about 0.5 point on the day. Shares of the Netherlands-based semiconductor company closed lower by $2.27, or 2.1%, to $106.70, which reversed an up move on Monday. The NXP convertibles were flat to slightly higher on swap.

Ctrip.com International Ltd. was another “large structure that was active,” the New York-based source said. Those convertibles were flat to lower on swap.

Market cheapens

The market overall experienced a markdown for September and is on average down 1 point to 1.25 points, according to a New York-based trader. A second trader agreed with the assessment.

The market is continuing to digest $12.9 billion of issuance in 21 deals, which was a monthly record.

“There is a lot of issuance that is being absorbed, and it was a challenging month for hedged funds,” the trader said. “Hedged players sold stuff to make room for the new paper. They were concentrated in positions in tech and health care and sold to raise funds to buy these new deals.”

“If you bought the new issues and those expanded for you on day one, maybe that mitigated the losses somewhat, but there was still a mark-down,” the trader said.

Meanwhile, Neoen SA of France said it is pricing €200 million of five-year convertible bonds exchangeable into new or existing shares of the company.

The new Oceanes were talked to yield 1.25% to 1.875% with an initial conversion premium of 35% to 42.5%, and they were expected to be issued at par later in the session.

Neoen is a renewable energy company based in Paris.

Mentioned in this article:

Ctrip.com International Ltd. Nasdaq: CTRP

FireEye Inc. Nasdaq: FEYE

Neoen SA Paris: NEOEN

NXP Semiconductors NV Nasdaq: NXPI

YY Inc. Nasdaq: YY

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