Tesla convertibles move up in line before shares pare gains; Onyx 7 points over parity

By Rebecca Melvin

New York, Aug. 26 - Tesla Motors Inc.'s convertibles revved up on an outright basis Monday and looked to be in line on a dollar-neutral, or hedged, basis with higher shares. The moves followed news the Palo Alto, Calif.-based electric car maker reported the Tesla Model S was among the most popular selling cars among luxury and sports car models in California.

Later Tesla shares sold off along with the broader markets and the convertibles looked to have expanded 0.125 point on a hedged basis, a New York-based trader said.

Onyx Pharmaceuticals Inc.'s convertibles jumped more than 10 points on an outright basis and were trading at 7 points above parity after news that the South San Francisco, Calif.-based biopharmaceutical company inked a deal with Amgen Inc., under which the Thousand Oaks, Calif.-based biotech giant will pay $125 per share in cash, or $10.4 billion, for the smaller company. Onyx shares rose 5.6%, and Amgen shares gained 7.7% on the news.

Elsewhere it was "pretty quiet," a New York-based trader said of the day's convertibles market. "There was not too much trading."

A second trader said, "It's the last week before Labor Day, and typically it's the first or second slowest week of the year after Christmas."

"You have to pick and choose names to focus on, and try to edge something out," he said of trade.

Equities strengthened early Monday after weak data. U.S. durable goods dropped by a larger-than-expected 7.3% in July, which was more than the 4% decline economists had been expecting.

That data suggested tapering of the U.S. central bank's $85 billion per month in asset purchases may linger longer in the face of an ongoing mixed picture in the U.S. economy.

But late in the session, equities fell after secretary of state John Kerry said that the United States will hold Syria's government accountable for the use of chemical weapons against its own people. He said the evidence against the regime was undeniable, calling it a "moral obscenity" for which that government will be held accountable.

"The entire market just turned over after John Kerry spoke," a New York-based trader said. "We're going to have to respond in some capacity; it's scary."

Tesla revs up

Tesla's 1.5% convertibles due 2018 were quoted at 152 bid, 153 offered versus an underlying share price of $169.00 Monday afternoon. The bonds had jumped to as high as 155 to 155.375 from 150 earlier Monday, according to Trace data, while Trace data reported the paper at 145 to 146 on Friday.

Tesla shares jumped in early trading to as high as $173.00, which was up 9%. But toward the end of the day, they fell back into the red before ending up $2.38, or 1.5%, at $164.22.

That's Tesla. It goes up and it goes down," a New York-based trader said.

After the close, the Tesla convertibles were seen at 149.5 bid, 150 offered versus an underlying share price of $164.22. That was roughly up 0.125 point on a dollar-neutral basis, a trader said.

Last week, the Tesla convertibles had come in, or weakened, on a dollar-neutral basis, sources said.

Shares ran up Monday after a report by the California New Car Dealers Association found that the Tesla Model S is among the top five selling models in the luxury and sports-car segment in the state through June of this year.

The Tesla car came in at No. 3 with 4,714 registrations, behind the Mercedes E-Class and BMW 5 Series, but ahead of the Lexus GS and Audi A6.

Onyx 7 points over parity

Onyx Pharmaceuticals' 4% convertibles due 2016 traded at 318.3 to 319 on Monday, up from 307 to 308 on Friday.

"They traded around 7 points over parity," a trader said.

Shares added $6.53, or 5.6%, to $123.49.

Amgen and Onyx announced on Sunday that their boards of directors had approved Amgen's acquisition of Onyx shares for $125 per share in cash, or $10.4 billion, or $9.7 billion net of estimated Onyx cash.

Onyx develops and markets therapies to improve the lives of people with cancer, including Kyprolis, a blood cancer treatment approved last year in the United States.

Kyprolis had had sales of $125 million for the first half of this year and it is expected to be a blockbuster with more than $1 billion in annual sales by 2015.

The transaction price is a 6.9% premium to Onyx' Friday closing share price, but it represents more than a 44% premium relative to where the share price was in late June right before news hit the Street that the two firms were in M&A talks.

"It's been bid up two or three times," a trader said. "It may happen to these companies like BioMarin or Theravance as big majors are coming in and buying these little companies."

The trader thought that the Onyx convertibles would creep back to parity as the deal close, expected at the beginning of the fourth quarter, gets closer.

Amgen will finance the acquisition with $8.1 billion in committed bank loans and the balance with cash available in the United States. The loans have five-year terms and carry an average interest charge of Libor plus 104 basis points.

Amgen expects to retain its investment-grade credit rating following this transaction and remains committed to increasing the dividend over time.

Mentioned in this article:

Onyx Pharmaceuticals Inc. Nasdaq: ONXX

Tesla Motors Inc. Nasdaq: TSLA

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