Improved earnings from Tesla, ServiceNow boost convertibles; NXP active on Qualcomm takeover

By Stephanie N. Rotondo

Seattle, Oct. 27 – Earnings news continued to be a key driver of convertible bonds on Thursday.

Tesla Motors Inc., for instance, saw its convertible notes trading actively following the company’s quarterly results released late Wednesday. The results showed a surprise profit – the first in over three years – and Elon Musk, chief executive officer, indicated that no new capital would be needed for the production of the new Model 3 sedan.

The convertibles – both the 1.25% convertible notes due 2021 and the 0.25% convertible notes due 2019 – traded up about 2 points outright. The equity was also somewhat better.

However, as the stock markets turned red, even the day’s gainers – such as Tesla – lost ground.

ServiceNow Inc.’s 0% convertible senior notes due 2018 were also trending higher in the wake of results that beat expectations. The bonds put on 5 to 6 points outright. The stock was initially as much as 12% better but came in to close up over 7% higher.

Away from earnings news, NXP Semiconductors NV’s 1% convertible notes due 2019 were active on the heels of news that the chip maker was being acquired by Qualcomm Inc. in a deal valued at $39 billion.

Late Wednesday, Helix Energy Solutions Group Inc. priced $125 million of 4.25% convertible senior notes due 2022, up 42.5%. The company said it plans to use those proceeds to privately repurchase and retire all $125 million of the 3.25% convertible senior notes due 2032.

The 3.25% convertibles were active on Thursday, trading at par.

The market was also waiting to hear pricing details on Theravance Biopharma Inc.’s $150 million offering of convertible senior notes due 2023.

Pricing was expected after the market closed.

Ahead of that, the stock was taking a beating, likely due in part to the company’s concurrent offering of $100 million in ordinary shares.

The stock dropped $6.43, or 19.5%, to $26.55.

Tesla’s quarter shock

Tesla Motors reported a profit for the third quarter, which came as a surprise to many investors.

The company also noted that because it had reduced costs related to the ramping up of production of its Model 3 sedan, it would not need to raise fresh capital.

However, Musk remarked that a capital raise could still occur in an effort to “account for uncertainty... and de-risk the business.”

On the news, Tesla’s convertibles saw active trading.

The 1.25% convertibles were quoted at 88.5 bid, 89 offered, an outright gain of 1.5 to 2 points on the day. The 0.25% convertibles were similarly higher, ending at 94.

The stock closed $1.77 better at $204.01, though it was up closer to $211.00 a share earlier in the day.

For the quarter, Tesla posted net income of $21.9 million, or 14 cents per share. That compared to a loss of $229.9 million, or $1.78 per share, the year before.

Revenue jumped to $2.3 billion.

The improved results were due in part to $139 million in zero emissions credits sold in California.

The company also said that it planned to spend about $1.8 billion in capital expenditures for the full year. That figure was well below previous estimates of $2.25 billion.

ServiceNow up on earnings

ServiceNow also released earnings late Wednesday. Come Thursday, the earnings beat was pushing the company’s convertibles higher.

The paper was seen at 131.375 at mid-morning, an outright gain of about 6 points. By the bell, the notes were placed in a 130 to 131 context.

The equity underlying the debt was up over 12% at mid-morning but retreated in line with the rest of the market, closing up $6.06, or 7.68%, at $84.96.

The Santa Clara, Calif.-based cloud computing company said adjusted earnings per share came to 23 cents, on revenue of $357.7 million.

Analysts had forecast EPS of 21 cents on revenue of $352 million.

Subscription billings rose 47% from the previous year, and the company expects total revenue growth of about 32% in the current quarter.

NXP, Qualcomm to merge

NXP Semiconductors’ 1% convertible notes were clearly in focus on Thursday, as the market learned that the Eindhoven, Netherlands-based chip manufacturer was being acquired by Qualcomm.

The convertibles were pegged at 114.875 versus a share price of $100.31 in early trading. At the close, the bonds were quoted at 114.5 bid, 114.875 offered.

That was about a point weaker day over day, according to a market source.

The equity was meantime higher, though only slightly so, gaining 42 cents to close at $99.08.

The stock had traded above the $100-mark earlier in the session.

The takeover deal places NXP’s stock value at $110.00.

On a per-share basis, the deal is valued at $39 billion, making it the second-largest semiconductor deal on record. Including the assumption of debt, the deal is valued at $47 billion.

NXP also reported earnings on Wednesday, showing a third-quarter profit of $91 million, or 26 cents per share.

That was lower than the $361 million profit seen the year before.

Operating income, however, rose to $691 million from $449 million.

Revenue was also improved, jumping 62% to $2.47 billion.

The merger – which is still subject to regulatory approval – is expected to close at the end of 2017.

Mentioned in this article:

Helix Energy Solutions Group Inc. NYSE: HLX

NXP Semiconductors NV Nasdaq: NXPI

ServiceNow Inc. NYSE: NOW

Tesla Motors Inc. Nasdaq: TSLA

Theravance Biopharma Inc. Nasdaq: TBPH

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