Older SolarCity trades a little better after sharp drop; Integrated Device notes firm

By Rebecca Melvin

New York, Nov. 2 – SolarCity Corp.’s convertibles traded a bit better on Monday as common shares of the San Mateo, Calif.-based solar panel company extended losses following its wider quarterly loss and weaker guidance that caused the securities to slide on Friday.

SolarCity’s older 2.75% convertibles traded a little better at 82 to 83 on Monday as shares continued lower. The shares were down 5% in the early going, but pared losses to close down only 1%.

Elsewhere the market was quiet on the first trading day of November. And baring some big events like takeovers, the remainder of the year is expected to be on the slow side for the secondary market as market players protect any gains notched earlier in the year and get ready for 2016 action.

For the year so far, convertible arbitrage investors “have done OK,” a New York-based buysider said, and from now to year-end, they will likely aim to preserve those gains.

According to relative value index of Hedge Fund Research, convertible arbitrage is up 1.3% for the year so far.

As for trading action, “it’s been extremely slow, and today is dead,” a buysider said.

Two weeks ago when news of the takeover of SanDisk Corp. by Western Digital Corp. hit, the convertibles market was pretty busy, the buysider said. But last week as market players trimmed or added to positions ahead of month end, it was very slow. And looking ahead to the next two months, more of the same is expected.

The SanDisk 1.5% convertibles traded on Monday at 160, which is about where those notes have settled in following the takeout news.

Light new issuance in the primary market has had something to do with the thinly traded secondary market. But it isn’t the only reason.

It hasn’t only been that it’s been light, but also that the deals that are getting done have been allocated to fewer, large buyers, and “they are happy to own them,” the buysider said. “So even the new deals are not trading.”

What has been in the center of market action has been situations like the SanDisk takeover news and several rate-sensitive issues as the expectation of a December rate hike has grown.

Just about everyone right now is on board with the idea of a rate hike in December, he said.

“People are setting things up before that happens,” he said. But the activity has been isolated and there is no general trend.

November is typically slow

“We’ve seen this before. When November hits the crickets come out. It’s been similar,” he said.

While the primary market has been on the light side, there were four new issues launched and priced last week, including Integrated Device Technology Inc.’s 0.875% convertibles. Those bonds were seen at 104.75 bid, 105.25 offered versus a common share price of $25.85 on Monday, and sources said that that deal did well for investors, if trading in the name had pretty much petered out already.

“There were a few prints” of the Integrated Device convertibles, but they weren’t trading that actively, a trader said.

Integrated shares were up about 1% at late morning but closed up only 16 cents, or 0.6%, to $25.66.

In the broader markets, equities closed up again on Monday with the S&P 500 stock market adding 24.69 points, or 1.2%, to 2,104.05, following an 8% climb for October.

The Dow Jones industrial average gained 165.22 points, or 0.9%, to 17,828.76, and the Nasdaq stock market gained 73.40 points, or 1.5%, to 5,127.15.

SolarCity lower but steady

SolarCity’s 2.75% convertibles were quoted at 82.125 versus an underlying share price of $28.37 early Monday. Later the bonds were seen up at 83.

On Friday, the paper had slid more than 4 points outright to around 82, according to Trace data.

The newer SolarCity 1.625% convertibles were quiet Monday after dropping as much as 5 points on Friday. But the convertibles had pared losses by the end of Friday, ending down at 69 ish, which represented a loss of nearly 3 points, according to Trace data.

SolarCity shares were off another $1.50, or 5%, to $28.15 in the early going Monday, after having closed down 24% on Friday. By the end of the session they had come back some to close down 0.7% on the day at $29.44.

SolarCity reported disappointing earnings for its latest quarter and lowered guidance for 2015 and 2016 installations. For 2015, SolarCity reduced 2015 installation guidance to 878 to 898 megawatts from 920 to 1,000 megawatts; and 2016 installations were reduced to about 1.25 gigawatts.

The company, which touted a goal for many years of 1 million installations, has curbed that forecast and said that it is shifting its performance goals to cash flow from growth.

The company, along with the rest of the solar sector, is anticipating a stiff headwind beginning in 2017 when a federal tax credit on renewable energy is scheduled to drop to 10% from 30%.

For the period ended Sept. 30, SolarCity reported a loss of $234.3 million, or $2.10 per share, compared with a loss of $70.1 million in the year-earlier period, or $1.95 per share. Revenue nearly doubled to $113.9 million from $58.3 million in the year-earlier period. Growth was driven by increased installations.

Mentioned in this article:

Integrated Device Technology Inc. Nasdaq: IDTI

SanDisk Corp. Nasdaq: SNDK

SolarCity Corp. Nasdaq: SCTY

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