Morning Commentary: Infinera hits the market, volatile on debut; Tesla in the headlines

By Abigail W. Adams

Portland, Me., Sept. 7 – The secondary space was active early in Friday’s session with more than $141 million on the tape. New paper from Infinera Corp. accounted for about 1/3 of the total trading volume.

Infinera priced an upsized $350 million of six-year convertible notes prior to the market open on Friday at the midpoint of talk with a coupon of 2.125% and an initial conversion premium of 30%.

Price talk had been for a coupon of 1.875% to 2.375% and an initial conversion premium of 27.5% to 32.5%, according to a market source.

The new paper was volatile with outright trades as high as 101.5 soon after the opening bell and as low as 99.25.

The new 2.125% notes due 2024 were trading between par and 100.25 with stock down about 3% shortly before 11 a.m. ET.

The volatility in the trading prices was largely due to the upsized offering, a market source said. “It gets a lot sloppier with the size increase,” the source said. “That’s a lot more stock that has to trade.”

Due to the upsized offering, there was more flipping of the notes, the source said.

While the notes were trading in a wide range early in the session, they were expanding dollar-neutral with the expansion expected to continue once the flipping activity settled.

Meanwhile, Tesla Inc.’s convertible notes returned to focus with a fresh batch of headlines about the embattled electric car manufacturer.

Tesla’s 0.25% convertible notes due 2019 dropped about 2 points outright to trade at 98.5 early in Friday’s session. With about $18 million on the tape, the notes were second only to Infinera in trading volume, a market source said.

Tesla’s 1.25% convertible notes due 2021 dropped about 6 points outright to trade at 94.625 with about $15 million bonds on the tape early in the session.

Tesla stock was down more than 5% to $266.66 early Friday.

SolarCity Corp.’s 1.625% convertible notes due 2019 were down 1.25 points outright to trade at 90.25. The notes are a yield-to-maturity play and do not trade in relation to stock, sources said.

The notes, which are guaranteed by Tesla, “are trading like people think they’re going to go bankrupt,” a market source said.

The notes were trading with an almost 11% yield to maturity.

The activity was brought on after news broke that Tesla’s chief accounting officer and head of human resources resigned and CEO Elon Musk allegedly smoked marijuana during a podcast interview.

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