Convertible bonds sink after Brexit vote; Tesla stays under pressure; Red Hat loses ground

By Stephanie N. Rotondo

Seattle, June 24 – The convertible bond market was following in line with the broader markets on Friday – that is, it was trading off on news the United Kingdom had voted to leave the European Union.

Still, the carnage was not untenable, at least according to one trader.

“There’s really no panic,” he said. He speculated that once European markets closed for the week, the U.S. markets “could totally reverse.” He also noted that in the European markets, the pain was being felt more outside of the U.K. than inside.

“The panic is in the rest of Europe,” he said.

And while U.S. markets did manage to pare some of their losses, the rebound was short lived. The Dow Jones industrial average, for instance, opened the day off over 500 points, but soon recovered a bit to being off only 300-and some points. By the end of the day, the Dow had dropped about 611 points.

As for the day’s dealings, Tesla Motors Inc.’s 0.25% convertible notes due 2019 continued to “follow the stock down,” a trader said.

He placed the bonds at 87.25. For its part, the equity was off $3.25, or 1.65%, at $193.15.

The name has been pressured for the last several days, ever since Tesla’s Elon Musk said he wanted the automotive company to purchase SolarCity Corp., another company in which Musk has a stake. The bonds and stock have waned as the deal has not generated a lot of investor support.

Oddly enough, trading in SolarCity was practically non-existent during Friday’s session.

Micron Technology Inc.’s paper, however, was on the busier side. A trader said the 3% convertible notes due 2043 were trading “just under 75,” equaling a 4.5% yield to put in 2028.

That stock was off 84 cents, or 5.98%, at $13.21.

Red Hat tips with market

Red Hat Inc.’s 0.25% convertible notes due 2019 were trading actively on Friday in an otherwise muted trading session.

A trader placed the issue at 123.25 versus a stock price of $75.25.

Another source also pegged the issue with a 123 handle, which was called down over a point.

The company’s common shares ended off $4.77, or 6.08%, at $73.62.

Earlier in the week, the Raleigh, N.C.-based software company reported its latest quarterly results, showing an 18% climb in revenue for the first fiscal quarter of 2017.

Revenue came to $568 million. Net income was $61 million, or 33 cents per share. That compared to $48 million, or 26 cents per share, the year before.

The net income gain was due in large part to a change in accounting standards, improving the bottom line by $8 million.

Red Hat also said that it spent $66 million during the period to buy back 900,000 shares of stock. The repurchase was part of the company’s plan to spend as much as $500 million to buy back some of its equity.

Under that program, it spent just $329 million. Looking ahead, the company said it will spend up to $1 billion to purchase more equity in the next year.

Rounding out the company’s news, Red Hat announced that it was acquiring 3Scale, an API management software developer. 3Scale is helpful for developers who use Red Hat’s OpenShift program.

Mentioned in this article:

Micron Technology Inc. Nasdaq: MU

Red Hat Inc. NYSE: RHT

Tesla Motors Inc. Nasdaq: TSLA

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