Convertible space takes a break ahead of holiday; Zillow, Ares active; Tesla volatile

By Abigail W. Adams

Portland, Me., July 2 – The convertible space is taking a breather in the run up to the mid-week July 4 holiday after clocking the busiest month in the past two years for new deal activity in June.

There was less than $22 million on the tape a little over an hour into Monday’s session and about $155 million on the tape by late afternoon, sources said.

“It’s quite dead. Everybody’s off,” a market source said. Dead was the word used by other sources to describe Monday’s trading session.

However, Zillow Group Inc.’s newly priced 1.5% convertible notes due 2023 continued to trade their second day in the secondary space.

The notes opened the day unchanged on a dollar-neutral basis but were seen expanding about 0.25 to 0.5 point by mid-afternoon.

Ares Capital Corp.’s 3.75% convertible notes due 2022 were also major movers on an otherwise low-volume day, although the notes were largely trading sideways.

Tesla Inc.’s 0.25% convertible notes due 2019 saw some action and were trading in a wide range as the company’s stock continued to see dramatic price swings.

No new deals are expected prior to the market’s early close on Tuesday, and trading volume was expected to remain light.

Zillow opens up

Zillow’s 1.5% convertible notes due 2023 saw a slight expansion on Monday after trading largely flat on a dollar-neutral, or hedged, basis on their market debut on Friday.

While the notes opened the day largely unchanged, they improved throughout Monday’s session both outright and dollar neutral. They were seen trading between 102.75 and 103 with stock up 50 cents to 80 cents.

The 1.5% notes were expanded about 0.25 to 0.5 point dollar neutral, sources said.

The notes continued to dominate secondary trading activity with about $20 million of the bonds on the tape by late afternoon.

Zillow’s 2% convertible notes due 2021 also continued to trade. The 2% notes were up about 1.75 points outright. They were seen trading at 128 versus an equity of $60.21 late afternoon.

Zillow stock closed Monday at $60.25, an increase of 2%.

Ares active

Ares Capital’s 3.75% convertible notes due 2022 were also a major volume mover on Monday with about $14 million of the bonds on the tape by late afternoon.

The notes were largely trading sideways, a market source said. They were seen changing hands at 100.875 versus an equity price of $16.44.

Ares Capital’s stock closed Monday at $16.45, unchanged from Friday’s close.

Ares Capital announced last week that it would reduce its minimum asset coverage ratio to 150% from 200%, as is now permitted by the Small Business Credit Availability Act, which was signed into law in March.

The New York-based specialty finance company intends to target a debt to equity range of 0.9x to 1.25x and will reduce its annual base management fee to 1% from 1.5% for all assets financed with leverage over 1x, according to a company news release.

Ares Capital’s 3.75% convertible notes have a BBB- credit rating from S&P Global Ratings.

The company intends to operate in a manner that will allow it to maintain its investment-grade rating, according to the news release.

Tesla volatile

Tesla’s 0.25% convertible notes due 2019 saw some muted activity on Monday with about $6 million bonds on the tape as the company’s stock saw a volatile session.

The 0.25% convertible notes also traded in a wide range. They were up about 2 points outright to trade north of 112 early in the session then down about 3 points outright to trade just south of 108 later in the afternoon, according to Trace data.

The notes were seen trading at 108.85 versus an equity price of $332.00 mid-afternoon, according to a market source.

Tesla stock traded to a high of $364.78 and a low of $329.85 before closing the day at $335.07, a decrease of 2.3%.

Tesla shares rose early in the session following a company announcement that it had hit its production goal for Model 3 sedans with 5,031 produced in the last week of the second quarter.

Tesla also increased its production target for Model 3 sedans to 6,000 per week by late July and reaffirmed its guidance for positive income and cash flow in the third and fourth quarters, according to the company news release.

However, Tesla stock fell after analysts questioned whether the company would be able to sustain its 5,000 per week production goal, Reuters reported.

Mentioned in this article:

Ares Capital Corp. Nasdaq: ARCC

Tesla Inc. Nasdaq: TSLA

Zillow Group Inc. Nasdaq: Z

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