Tesla’s convertibles weaken as stock markets broadly sell off; oil-services names lower

By Rebecca Melvin

New York, March 21 – Tesla Inc.’s convertibles were weaker on Tuesday – including its new $850 million of 2.375% convertibles – as selling hit the broader markets, particularly stocks, oil and the dollar markets. Bond yields were lower as bond prices strengthened.

“I heard the Tesla complex lower this morning,” a New York-based sellsider said, referring to the electric car maker’s four convertible bond issues.

There were sellers of the new Tesla bond, which debuted in the market last Friday, and those were quoted at 97.8125 against a share price of $255.00. There was also pressure on the Tesla 1.25% convertibles due 2021, or B tranche, the Tesla 0.25% convertibles due 2019, or A tranche, and the Tesla 2.75% convertibles due 2018, which were initially issued by SolarCity. They were all down 0.125 point to 0.25 point on a dollar-neutral, or swap, basis, two market sources agreed.

There was also weakness in the oil patch, with the convertibles of oil-services companies weak again on Tuesday, market sources said.

The convertibles of both Ensco plc, a London-based offshore drilling services company, and Weatherford International Ltd., the Swiss-based equipment-services company, were lower by about 0.25 point on a dollar-neutral basis, a New York-based trader said.

Ensco stock was weaker intraday but ended flat at $8.46, while Weatherford shares were off 7 cents, or 1.1%, at the end of the day, settling at $6.11.

U.S. crude oil prices fell to a four-month low on Tuesday, with the price for light, sweet crude oil for April delivery dropping 1.8% on the day to $47.34 per barrel on the New York Mercantile Exchange. But oil prices have been hit by rising U.S.-based inventories and production, and in the last two weeks have dropped more than 11%.

U.S. stocks also sagged. The Dow Jones industrial average fell 237.85 points, or 1%, to 20,668.01; the S&P 500 fell 29.45 points, or 1.2%, to 2,344.02; and the Nasdaq Composite lost 107.70 points, or 1.8%, to 5,793.83.

The markets’ weakness was attributed to several factors, including questions about whether the Trump Administration’s agenda will gain traction as well as fundamental weakness in a few sectors including autos and retail in addition to oil. Questions about the potential for repeal of the Affordable Care Act, which many see as tied to tax cuts, were at the forefront of concerns ahead of a vote in Congress slated for Thursday.

The 1% or more drop in stock indices on Tuesday represented the worst day for stocks this year. Nevertheless, a few U.S. convertible names were trading better even as stocks traded down.

ON Semiconductor Corp.’s $500 million of 1.625% convertible senior notes due 2023, which priced last week, remained in demand, moving up a little bit on Tuesday.

The ON Semiconductor convertibles “are better to buy today,” a trader said, indicating that there were more buyers than sellers in the notes, which traded at 101.87, according to Trace data, and were called higher by about 0.1875 point on a dollar-neutral basis.

“One source thinks there is an outright guy in the market,” a New York-based trader said.

Morgan Stanley & Co. LLC, BofA Merrill Lynch, Deutsche Bank Securities Inc., BMO Capital Markets and HSBC ran the Rule 144A deal.

ON Semiconductor’s older 1% convertibles due 2020 were trading down 0.6 point at 107.19, according to Trace data, while shares of the Phoenix-based semiconductor manufacturing company fell 59 cents, or 3.9%, to $14.66 on the day.

Jazz Pharmaceuticals plc’s 1.875% convertibles due 2021 traded at 107.25, which was up slightly from a late-Monday trade at 107.16. The bonds rose to 107 from 103 on Monday after the Dublin-based pharmaceutical company announced positive drug efficacy results from late-stage studies of obstructive sleep apnea.

Jazz shares were off $2.45, or 1.7%, to $141.63 early Tuesday.

Vipshop Holdings Ltd.’s 1.5% convertibles due 2019 were also better again, trading early Tuesday at 102.5, which was up from 102.375 late Monday, despite lower shares early Tuesday. Shares were down 50 cents, or 3.5%, at $13.77. The bonds on Friday has been at 101.75 to 102, according to Trace data.

Tesla lower

Tesla’s new 2.375% convertibles due 2022 were heard at 97.8125 versus an underlying share price of $255.00. But shares of the Palo Alto, Calif.-based electric car maker fell by a greater magnitude, dropping $11.24, or 4.3%, to $250.68 for the day.

At late morning, the new Tesla convertible traded up 0.2 point to 99.58.

The Tesla B tranche traded around 92 intraday, which was down from 94 to 95 on Monday.

The Tesla 0.25% convertibles due 2019, or the A tranche, was last at 96, down from 98 earlier in the day. And the Tesla 2.75% convertibles due 2018 were last at 95.5, which was down from 97.5.

On a day like Tuesday, when the whole market is lower, it makes sense that these are under pressure, a sellsider reasoned. Nevertheless, the Tesla 2.375% convertibles have been under pressure since issue and slipped under par too quickly, according to other market players.

Goldman Sachs & Co., Deutsche Bank, Citigroup Global Markets Inc. and Morgan Stanley were lead bookrunners. Barclays, BofA Merrill Lynch and Credit Suisse Securities (USA) LLC were also participating.

Concurrently with the bond offering, the company sold $250 million of common stock.

Elon Musk, chief executive officer, agreed to purchase $25 million of the shares.

The company’s latest capital raise was predicted by Goldman Sachs late last month when the bank lowered its rating on the stock to “sell” from “neutral.”

Goldman cited concerns about the company’s rollout of its Model 3 sedan as well as its SolarCity acquisition and its unproved benefit to the company.

The Tesla 1.25% convertible, or the B tranche, traded at 93.88 versus a share price of $243.90 after the downgrade.

Meanwhile, the company’s latest earnings report released Feb. 22 was mixed, causing shares to slide 6%. The company lost 69 cents per share for the fourth quarter, excluding items, which was a wider loss than the 43 cents per share loss expected by analysts. Revenue was $2.28 billion compared to $2.19 billion expected.

Mentioned in this article:

Ensco plc NYSE: ESV

Jazz Pharmaceuticals plc Nasdaq: JAZZ

ON Semiconductors Corp. Nasdaq: ON

Tesla Inc. Nasdaq: TSLA

Vipshop Holding Ltd. Nasdaq: VIPS

Weatherford International Ltd. NYSE: WFT

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