Atlas Air flies higher in heavy volume; Tesla Motors lower outright, mixed on swap

By Rebecca Melvin

New York, May 5 – Convertibles were mixed on Thursday in trading action mostly spurred by earnings reports. Atlas Air Worldwide Holdings Inc.’s 2.25% convertibles due 2022 spiked in heavy volume after the Purchase, N.Y.-based outsourced aircraft and aviation services company posted better-than-expected earnings ahead of the market open and announced a pact to provide support for Amazon e-commerce deliveries.

Atlas Air was the most actively traded convertible bond of the day, according to Trace data. By 11:30 a.m. ET, some $43 million of bonds had changed hands, and the paper gained more than 15 points, ending the session at 98.875 versus shares that were up by $10.34, or 27%, to $48.66.

Tesla Motors Inc.’s convertibles were lower outright but mixed on a dollar-neutral, or swap, basis as shares moved from gains to losses after the electric car maker posted its quarterly results and production forecast.

The Tesla B convertibles, which gained the most in the sessions before the earnings report, were the hardest hit, contracting about 0.5 point on swap, a New York-based trader said.

Chesapeake Energy Corp.’s convertibles were higher by 2 to 3 points after the Oklahoma City-based energy company posted earnings and announced $471 million in asset sales on Thursday.

Monster Worldwide Inc.’s 3.5% convertibles due 2019 traded down about 4 points to 87 as shares fell 9.8% to $2.76 after the Weston, Mass.-based online job search company reported earnings that were in line with estimates, but missed on revenue and guided second-quarter earnings below consensus.

Pernix Therapeutics Holdings Inc. shares plunged 46% on Thursday after the Morristown, N.J.-based specialty pharmaceutical company reported a disappointing loss for its first quarter. The Pernix 4.25% convertibles due 2021, of which $130 million priced in April 2015, weren’t heard in trade, but they were indicated down more than 5 points to about 27, according to a market source. The initial conversion price on the Pernix bond is $11.47. But the shares were trading at about $0.60 on Thursday.

Priceline Group Inc.’s 1% convertible due 2018 bounced back a little bit in trade Thursday after a sharp drop on Wednesday after the Norwalk, Conn.-based online travel services company warned its current-quarter profit will not grow as much as previously expected.

Overall, the theme of the day was earnings related, a trader said. But the overarching theme remains that the convertibles market needs more new issuance and there is a lack of volume, he said.

Tesla bonds mixed on swap

The Tesla B convertibles, or 1.25% convertibles due 2021, moved lower to about 86 versus a common share price of $213.00 early Thursday. That represented a 0.5 point swap drop, a New York-based trader said.

On an outright basis, the Tesla Bs had traded initially at 89 and then 88 and 87 early Thursday. They had traded at 88 to 90 on Wednesday.

Shares had been down 3.7% to $214.29 at that point, but they ended lower, down $11.03, or 5%, to $211.53.

The stock had been sharply higher in the pre-market to $232.00 per share but came in after the market opened, a trader noted.

The Tesla Bs, which had run up most strongly among the convertible bond issues in pre-earnings trading action, were the hardest hit.

The Tesla A convertibles, or 0.25% convertibles due 2019, were holding in better, or dropping in line on a dollar-neutral, or swap, basis to 90.25 bid, 90.75 offered, the trader said.

“The As are nuking in line,” a trader said.

The Tesla 1.5% convertibles due 2018, or the “olds,” were improving as borrow was improving. It had been less 0.75 point compared to parity, and most recently was plus 0.5 point over parity, the trader said. Those bonds changed hands at 172, which was down 15 points on an outright basis, according to Trace data.

Tesla shares reversed course as investors weighed the feasibility of the company’s announced production target of 500,000 cars by 2018. The company produced 15,510 cars in the 2016 first quarter and expects to produce about 85,500 for the year.

Tesla reported an adjusted loss of 57 cents per share on revenue of $1.6 billion, which compared to expectations for a loss of 58 cents per share on revenue of $1.6 billion.

Chesapeake up on asset sales

Chesapeake’s 2.25% convertibles due 2038 traded at 66 on Thursday.

Chesapeake’s 2.5% convertible notes due 2037 were seen up at 87 to 87.50 from about 83, as shares of the company moved up to $5.71, which was up 6 cents, or 1%.

The company announced that it will sell $470 million in assets in Oklahoma to Newfield Exploration Co. as part of its plans to shore up finances, and it expects further divestitures during the second and third quarters, according to chief executive Doug Lawler in a company news release.

The company also lowered its forecast for 2016 production costs to $3.40 per barrel to $3.60 per barrel of oil equivalent from $3.60 per barrel to $3.80 per barrel of oil equivalent.

The company said that it continues to weigh all options, including the use of additional secured debt, private transactions with bondholders and other types of exchange offers and open market purchases.

Its quarterly results were mixed, with earnings in line with estimates and revenue missing expectations.

Chesapeake’s net loss narrowed to $964 million in the just-finished quarter, from $3.78 billion a year earlier. The year-earlier period included one-time items of $3.8 billion. Excluding an $853 million impairment charge, the loss was 10 cents per share. Revenue fell to $1.95 billion, which missed analysts' expectations for $2.55 billion in revenue.

Mentioned in this article

Altas Air Worldwide Holdings Inc. Nasdaq: AAWW

Chesapeake Energy Corp. NYSE: CHK

Monster Worldwide Inc. NYSE: MWW

Pernix Therapeutics Holdings Inc. NYSE: PTX

Priceline Group Inc. Nasdaq: PCLN

Tesla Motors Inc. Nasdaq: TSLA

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