New deal from Great Ajax deemed a dud; Tesla flat despite recall news; Great Plains gains

By Stephanie N. Rotondo

Seattle, April 20 – Convertible bond investors didn’t seem to be all that impressed with a new issue from Great Ajax Corp., despite the recent dearth of new paper.

Late Wednesday, Great Ajax said it sold $76.25 million of 7.25% convertible senior notes due 2024, with an initial conversion premium of 17.5%.

The deal came at the mid-point of price talk for a 7% to 7.5% yield and a conversion premium of 15% to 20%.

Raymond James & Associates Inc. and JMP Securities LLC ran the books.

But one New York-based sellside source said he didn’t “see the advantages of owning a convert like that.”

The source noted that with a 28-cent dividend on the common stock – which closed at $13.19, a gain of 11 cents on the day – the company is paying closer to 8.5% on the common, versus the 7.25% yield on the new issue.

“Why pay the premium?” the source mused.

Still, he noted that the terms were “good for the company.”

It is also notable that the convertibles were $25-par and that they will be listed on the New York Stock Exchange.

A convertible market veteran remarked that General Motors Co. had some “old [convertible] preferreds like that,” though the structure is unusual.

The paper was not very active post-pricing, with one trader seeing a $25.10 bid for paper, but on small size.

“It was a small wall crossed deal by a couple of small underwriters,” said another trader. “So it will not be very liquid or active.”

Conversions will be settled in common stock, cash or a combination of the two, at the company’s option. The initial conversion rate is 1.6267 shares per each $25 of notes, equal to an initial conversion price of $15.37 a share.

In the secondary, Tesla Inc.’s convertibles were holding their ground despite news the company was recalling 53,000 vehicles due to a faulty brake issue.

The stock was down less than 1% for the day.

Great Plains Energy Inc.’s 7% series B mandatory convertible preferred stock (NYSE: GXPPrB) was meantime trading quite actively – at least for a convertible preferred issue – and better, even though state regulators nixed the company’s merger with Westar Energy Inc.

Tesla steady on recall

Tesla’s convertibles weren’t fussed much by news the Palo Alto, Calif.-based electric car maker was recalling 53,000 of its Model S and X cars due to a problem with the vehicles’ parking brake.

The 2.375% convertible notes due 2022 – the most active of Tesla’s convertible paper – finished the session about unchanged, trading in a 109.325 to 110.375 context, according to a market source.

The underlying stock fell less than 1%, but remained over the $300-mark at $302.51.

In a statement released on Thursday, Tesla said it was recalling cars “built between February and October 2016 [that] may contain a small gear that could have been manufactured improperly by our third-party supplier.”

Thus far, there have not been any accidents or injuries related to the problem, Tesla said, adding that only about 5% of vehicles are likely effected.

Tesla also said it should take about 45 minutes to fix the issue.

Great Plains gains

Great Plains Energy’s $12.2 billion merger with Westar Energy suffered a setback, as the Kansas Corporation Commission unanimously voted against the combination on Wednesday.

Despite that, the company’s 7% convertible preferreds were heading higher, as was the common stock.

The preferreds added 70 cents, or 1.31%, closing at $54.25. The common stock rose 4 cents to $29.55.

Great Plains first announced its intent to acquire Westar in May 2016. In September 2016, shareholders at both companies overwhelmingly approved the deal.

But regulators at the KCC ultimately voted against the merger, saying that there were not enough provisions in the plan to protect consumers.

“Unfortunately, the transaction was presented to the commission as a take it or leave it proposal,” the commissioners wrote in their decision. “Repeatedly, the joint applicants advised the commission that any significant safeguards that would protect consumers, such as maintaining a separate, independent Westar board of directors, would halt the transaction. Therefore, the proposed transaction could not be salvaged and the commission was left with no choice but to reject the proposed transaction.”

In light of the KCC’s decision, Great Plains pulled its application from the Missouri Public Service Commission, which also wanted to weigh in on the deal, given that the merger would have given the company customers across state lines.

Neither Great Plains nor Westar have said much about their plans going forward, other than to say that they are reviewing their options.

Should the deal completely collapse before May 31, Great Plains will have to pay Westar a $380 million termination fee. However, that date could be extended to Nov. 30 in certain circumstances.

Mentioned in this article:

Great Ajax Corp. NYSE: AJX

Great Plains Energy Inc. NYSE: GPX

Tesla Inc. Nasdaq: TLSA

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