Live Nation convertibles expand; Tesla dominates; Illumina contracts; Intelsat plunges

By Abigail W. Adams

Portland, Me., Jan. 30 – The convertible secondary space was active on Thursday with new paper and earnings-related news jumpstarting trading activity.

However, the activity was largely concentrated in three names – Live Nation Entertainment Inc., Tesla Inc. and Illumina Inc.

Live Nation Entertainment’s newly priced 2% convertible notes due 2025 were holding up well with stock off during Thursday’s session.

While hovering around par, the notes saw a large dollar-neutral expansion.

Tesla’s convertible notes again dominated activity in the secondary space following the electric car manufacturer’s blow-out earnings.

With the notes moving on a high delta, they were largely moving in line with stock, which shot past $600.

Illumina’s convertible notes were also active following its earnings report with the biotech company’s 0% convertible notes due 2023 contracting as stock dropped.

Intelsat SA’s 4.5% convertible notes due 2025 were getting bludgeoned on Thursday with the satellite company’s entire capital structure crumbling following the latest news about the payout expected from the c-band auction.

Live Nation expands

Live Nation priced $350 million of five-year convertible notes at par to yield 2% with an initial conversion premium of 50% after the market close on Wednesday.

Pricing came toward the rich end of talk for a coupon of 1.875% to 2.375% and at the midpoint of talk for an initial conversion premium of 47.5% to 52.5%.

The new paper was active and putting in a strong performance in the secondary space.

The 2% convertible notes were marked at 100.5 bid, 100.75 offered with stock off during Thursday’s session, sources said.

The notes expanded about 1 point on a dollar-neutral basis.

Live Nation stock traded to a low of $69.18 but rebounded toward the end of the session to close the day in the green. Stock traded to a high of $70.71 before closing the day at $70.65, an increase of 0.11%.

While sources took issue with the high premium on the notes, the deal modeled cheap, and Live Nation is a well-known and highly regarded name in the convertibles space, sources said.

Tesla blows out

Tesla’s convertible notes again saw high-volume trading activity following a blow-out earnings report that surpassed analyst expectations.

The 2% convertible notes due 2024 rose to 219 on Thursday.

The 1.25% convertible notes due 2021 were trading just shy of 183.

The 2.375% convertible notes due 2022 rose to 205.

Tesla’s stock skyrocketed on Thursday after fourth-quarter earnings beat on both the top and bottom lines.

Tesla stock traded to a low of $618.00 and a high of $650.88 before closing the day at $640.81, an increase of 10.30%.

“A lot of people made a lot of money off the name, and a lot of hedge funds got crushed on the short,” a source said.

With the convertible notes trading at such a high dollar-price, they will mostly move in line with equity, the source said.

The notes move on a high-delta and will not see much movement dollar-neutral, another source said.

Tesla reported earnings per share of $2.14 versus analyst expectations for earnings per share of $1.77. Revenue was $7.4 billion versus analyst expectations of revenue of $7 billion.

Tesla also reported it is ramping up its production of the Model Y with deliveries expected to start in March.

Illumina contracts

Illumina’s convertible notes were also active following its fourth-quarter earnings report with one tranche contracting in the high-volume activity.

Illumina’s 0% convertible notes due 2023 dropped about 3 points outright. They were changing hands at 106 in the late afternoon.

The notes were contracted about 0.5 point dollar-neutral, a market source said.

Illumina’s 0.5% convertible notes due 2021 dropped about 6 points outright. They were changing hands at 126.5 in the late afternoon.

The convertible notes from the biotech company that is focused on developing systems for genetic analysis are heavily shorted.

The trading activity was largely driven by short-covering and also outright selling, a source said.

Illumina stock traded to a low of $295.25 and a high of $315.24 before closing the day at $296.00, a decrease of 5.52%.

While Illumina beat expectations in its fourth-quarter earnings report, stock was selling off based on weak guidance.

Illumina reported fourth-quarter earnings per share of $1.70 versus analyst expectations for earnings per share of $1.59.

Revenue was $953 million versus analyst expectations for revenue of $944 million.

However, revenue estimates of $3.86 billion to $3.93 billion for 2020 missed analyst expectations for revenue of $3.94 billion.

Intelsat bludgeoned

Intelsat’s 4.5% convertible notes due 2025 were the “poster child of getting bludgeoned like a baby seal,” a market source said.

The notes tumbled more than 25 points outright and contracted as much as 15 points dollar-neutral over the past two sessions, the source said.

The notes were changing hands around 40 in active trading on Thursday.

Intelsat stock traded to a high of $3.43 and a low of $2.72 before closing the day at $3.11, a decrease of 17.72%.

The satellite company’s entire capital structure was crumbling as news surfaced about various efforts that would limit the payout to satellite companies for opening up the c-band to mobile phone operators for 5G.

News broke on Wednesday that the chairman of the Federal Communications Commission was leaning toward a set incentive payment structure for the c-band with a set payment of $5 billion for members of the C-Band Alliance.

Legislation was also recently introduced to the U.S. Senate that would limit the payout to satellite companies for the c-band.

Intelsat joined with other satellite companies to form the C-Band Alliance, which was lobbying for a private auction of the c-band – a proposal which now seems unlikely to succeed.

Intelsat is a well-known name in Junkbondland but crossed over and priced the 4.5% convertible notes in June 2018.

The notes were initially an outperformer and were trading as high as 160 as recently as November 2019.

However, the notes, and Intelsat’s entire capital structure, sold off as concern mounted about the payout the company would receive for the c-band.

Mentioned in this article:

Illumina Inc. Nasdaq: ILMN

Intelsat SA NYSE: I

Live Nation Entertainment Inc. NYSE: LYV

Tesla Inc. Nasdaq: TSLA

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