Tesla jumps outright, up slightly dollar neutral; new American Energy trades par to 101

By Rebecca Melvin

New York, Feb. 20 - Tesla Motors Inc.'s convertibles surged on an outright basis on Thursday and were slightly higher on a dollar-neutral, or hedged, basis after the Palo Alto, Calif.-based electric car maker reported better-than-expected quarterly results and offered an upbeat production outlook, market sources said.

The Tesla bonds dominated trading action in the convertibles market, which has been on the quiet side during the holiday-shortened week.

Another active bond was the Cemex SAB de CV 4.875% convertibles due 2015 which traded up about a point to 125.945, according to Trace data. Also trading on the brisker side was Newmont Mining Corp.'s 1.25% convertibles due July 15, which traded little changed at around par with the underlying shares up 2.9%.

American Energy Partners LP's newly priced 3.5% convertibles made a debut in the secondary market after the upsized $750 million of subordinated notes priced at the midpoint of coupon talk. The issue was originally talked at $500 million in size.

The bonds were allocated to both outright and hedged investors and traded at par to 101, according to syndicate source. But the deal has no underlying stock, and conversion is contingent upon the issuer's initial public offering.

Many convertibles sources said they had never heard of a new issue being priced before an IPO. But one source said there was precedent in 2006 and 2007 with Clearwire Corp. and Globalstar Inc.

He said the pre-IPO convertible made sense because it allowed the issuer to "raise capital to grow its business at a better cost than can be achieved from venture capital or other private sources of capital."

Equities ended higher after a soft start. Investors were encouraged by Markit's Flash U.S. Manufacturing Index, which showed domestic manufacturing rebounded in February from a slowdown in January and expanded at the fastest pace in almost four years to 56.7 from 53.7.

The U.S. survey contrasted with the preliminary version of HSBC Corp.'s China purchasing managers' index, which fell to a seven-month low of 48.3 from 49.5 in January.

The Nasdaq stock market put in the best performance of the day ultimately, gaining 29.59 points, or 0.7%, to 4,267.55, the S&P 500 stock index added 11.03 points, or 0.6%, to 1,839.78 and the Dow Jones industrial average tacked on 92.67 points, or 0.5%, to 16,133.23.

Tesla higher on hedge

Tesla's 1.5% convertibles due 2018 were quoted at 177.5 bid, 178 offered versus an underlying share price of $207.50 on Thursday. Midsession levels were up at 180.33, according to Trace data, but the market close was close to the 177.5 bid, 178 offered level, a New York-based trader said.

Those levels were up from 169.25 versus an underlying share price of $195.50 late Wednesday. Last Friday, the Tesla bonds traded at 171.48 with the shares at $198.23.

Tesla shares ended up $16.33, or 8.4%, at $209.97 on Thursday.

Early in the session the bonds were unchanged or slightly higher on a dollar-neutral, or hedged, basis, traders said. But at the end of the session the bonds were said to have expanded as much as 0.5 point for some market players.

Tesla's stellar earnings spurred the move. On an adjusted basis, Tesla said it earned 33 cents per share, which was 10 cents better than analysts' expectations for adjusted earnings of 23 cents per share, propelled by strong demand and improved profit margins.

Revenue more than doubled to $615.2 million, which fell short of analysts' estimates for $683.9 million in revenue.

Looking ahead, Tesla, headed by market phenomenon Elon Musk, forecast production will jump to more than 35,000 Model S sedans delivered in 2014, which is 55% higher than in 2013.

New American Energy prices

American Energy - Utica LLC, an affiliate of American Energy Partners, which is headed by another market phenomenon, Aubrey McClendon, priced a pre-IPO issue of convertibles to yield 3.5%. The issue traded at 100 to 101, according to a syndicate source.

Conversion of the convertibles that mature March 1, 2021 is contingent on the IPO, which is also when the bonds become callable.

Jefferies LLC, Citigroup Global Markets Inc. and Goldman Sachs & Co. were the joint bookrunners of the Rule 144A offering.

Concurrently with the closing of the notes, the company will enter into an amendment of its senior secured credit facility to provide for $500 million of incremental borrowings under a term loan facility, which increases American Energy - Utica's total borrowing capacity to $950 million.

Proceeds from the offering and the incremental term loan borrowings will be used to fund pending leasehold acquisitions and planned capital expenditures for drilling and development in southern Utica Shale.

Oklahoma City-based American Energy is involved in onshore U.S. unconventional resource plays.

Mentioned in this article:

Cemex SAB de CV NYSE: CX

Clearwire Corp. Nasdaq: CLWR

Globalstar Inc. Nasdaq: GSAT

Newmont Mining Inc. NYSE: NEM

Tesla Motors Inc. Nasdaq: TSLA

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