Morning Commentary: Tesla dominates trading after new deal announced; ON’s new issue steady

By Stephanie N. Rotondo

Seattle, March 16 – Tesla Inc. was the nom du jour on Thursday, a convertible bond trader said, as the market reacted to the company’s announcement of a $1 billion capital raise.

“Outside of that, it’s another lackluster session,” the trader added.

The trader saw Tesla’s 1.25% convertible notes due 2021 at 95.5 to 96, while the 0.25% convertible notes due 2019 were pegged at 97.625 to 98.

The convertibles of Tesla’s SolarCity Corp. subsidiary were also trading, the trader noted.

That paper “trades on yield and looks largely unchanged to me,” he added.

SolarCity’s 1.625% convertibles notes due 2019 were in an 88.75 to 89 context in early dealings, according to the trader. The 2.75% convertible notes due 2018 were at 96.125 to 96.375.

As for the underlying stock (Nasdaq: TSLA), it was up $4.87, or 1.9%, at $260.60. The gain in the equity was somewhat surprising, given that most of the time stocks falter after capital raises are announced – especially when the deal size is so big.

After the market closed on Wednesday, Tesla said it was selling $750 million of five-year convertible notes and $250 million of common stock.

The convertibles are talked in a 1.875% to 2.375% range with an initial conversion premium of 25% to 30%.

Pricing is expected after Thursday’s close.

Proceeds will be used to strengthen the company’s balance sheet, to further reduce any risks associated with the rapid scaling of the business due to the launch of the Model 3 and for general corporate purposes.

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

Meanwhile, ON Semiconductor Corp.’s $500 million of 1.625% convertible senior notes due 2023 were little changed in Thursday trading.

A trader quoted the issue at 100.875 bid, 101 offered.

The company’s shares (Nasdaq: ON) were meantime rebounding from the previous day’s lows, adding a dime to $15.32.

The deal priced late Tuesday and dominated the midweek session.

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

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