Solazyme gains in active trade; Tesla Motors slips outright, adds on hedge; SINA sees bid

By Rebecca Melvin

New York, March 27 - Solazyme Inc.'s newly priced 5% convertibles gained in active trade on their debut in the secondary market on Thursday even as convertibles in general remained locked in their recent pattern of lighter volumes and subtle profit-taking heading into month end and quarter end.

The Solazyme bonds traded up to as high as 106.75 and were 105.75 closer to the market close, according to Trace data. Shares of the San Francisco-based plant oils producer ended lower by a dime, or 0.8%, at $11.45.

No traders queried had seen a market in the new Solazyme bonds, however, and they said the paper was trading primarily on an outright basis.

Elsewhere, sellers generally outnumbered buyers as convertibles players looked to be trimming positions.

"Performance has been strong for the first quarter, and I think people are locking in some of the gains. Maybe there are some geopolitical concerns and people are selling stuff, but it's been a nice run for a couple of months since December, and I think they are taking some profits," a New York-based trader said.

He estimated that convertibles have contracted about 0.25 point to 0.5 point across-the-board in recent sessions.

Two names on Thursday bucked the trend, however. Tesla Motors Inc.'s two new convertibles, which priced a month ago, were lower on an outright basis with weaker shares but expanded slightly by about 0.125 point on a dollar-neutral basis, a New York-based trader said.

SINA Corp.'s 1% convertibles, which priced late last year, had buyers on Thursday but few, if any sellers. The convertibles of the Shanghai-based online media company were 95 bid, with no offers, a trader said.

New issuance robust

New issuance for March has been robust, with about $4 billion in new paper in 14 deals for the month so far. That level is up from about $3.5 billion in 10 deals for March 2013. And that amount doesn't include the $2 billion of new convertibles that Tesla priced at the very end of February.

"Most of the deals have been well received," a New York-based syndicate source said. But an East Coast-based buysider said that March's new issues were "mixed," with "some good, some not so much."

Some of the smaller deals did particularly well, including Gramercy Property Trust LP's $115 million of 3.75% convertibles and Emerald Oil Inc.'s $172.5 million of 2% convertibles, which are trading at a premium. But Navistar International Corp.'s new deal "came in," one trader said.

A syndicate source said that the trend in new issuance represents a continuation of the dynamics in place during the last half of 2013. "There are a lot of the same types of companies in the tech sector and higher growth companies. Those kinds of deals like Akamai's and Tesla's did well while the tough to borrow names and the Asian names faced a little tougher level of receptivity."

"Companies continue to use the market," he said. But he expected that in April new issuance would taper off at least in the first part of the month as many companies would be in blackout periods associated with quarterly earnings reports.

Equities extended losses. The Nasdaq stock market put in the worst showing again, ending down 22.35 points, or 0.54%, at 4,151.23; the S&P 500 stock index shed 3.52 points, or 0.2%, to 1,849.04, and the Dow Jones industrial average slipped 4.76 points, or 0.03%, ending at 16,264.23.

New Solazyme gains

Solazyme's new 5% convertibles due 2019 traded early at 104.25 with the underlying shares lower. They rose to 106.75 and were 105.75 late in the session. Solazyme shares ended down 10 cents, or 0.8%, at $11.45.

Solazyme priced the upsized $130 million of the 5.5-year notes at the tight end of coupon talk and with an initial conversion premium of 20%.

The registered offering was initially talked at $100 million in size.

Solazyme also priced 5 million shares of common stock, which was not upsized, at $11.00 per share for $55 million of proceeds.

Goldman Sachs & Co. was bookrunner for the notes offering, and Goldman and Morgan Stanley & Co. LLC were bookrunners for the stock offering.

The convertibles are non-callable with no investor puts. There is takeover protection and an early conversion payment under which holders with respect to certain conversions occurring before Jan. 1, 2018 will be entitled to receive an early conversion payment of $83.33 per bond in addition to the shares deliverable upon conversion, and that amount may be settled in cash or shares at the company's option.

Proceeds will be used to fund capital expenditures, for working capital and for general corporate purposes.

San Francisco-based Solazyme uses plant-based sugars to produce oils for use in the chemicals and fuels industries, as well as for the nutrition, skin and personal care markets.

Teslas better on hedge

The Tesla 0.25% convertibles due 2019 changed hands during the session at 92, which was down a point on the day, according to Trace data. The Tesla 1.25% convertibles due 2021 were also at 92.

Tesla shares were down $5.25 at about $208.00 at the time of those trades, and they ended down $5.64, or 2.65%, at $207.32.

Tesla shares have skidded more than 15% since the Palo Alto, Calf.-based electric car maker priced the upsized $2 billion of the five-year and seven-year notes at the rich end of talk on Feb. 27. But for the year to date, Tesla shares are higher.

The Tesla convertibles are considered one of the market's successful new issues despite their prices, which are now in the low 90s.

"On an outright basis, they are 'in,' with the stock, but they are better on hedge," a syndicate source said.

SINA sees buyers

SINA's 1% convertibles were 95 bid with the underlying shares at $58.75, a New York-based trader said.

By the market close, the SINA shares were up 27 cents, or 0.45%, at $59.90.

"The SINA 1%'s saw better buyers. They are better than where we thought they were; they are looking like they are opening up," the trader said.

He said that assuming a credit spread of 450 basis points over Libor, the paper has a bond floor that is close to the high 80s. "They are trading at a skinny premium to investment value; I think guys have done well in these," he said.

Mentioned in this article:

Emerald Oil Inc. AMEX: EOX

Gramercy Property Trust LP NYSE: GPT

Navistar International Corp. NYSE: NAV

SINA Corp. Nasdaq: SINA

Solazyme Inc. Nasdaq: SZYM

Tesla Motors Inc. Nasdaq: TSLA

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