Landmark convertible preferreds on tap; Red Hat trades around parity; DISH active

By Abigail W. Adams

Portland, Me., March 27 – The convertibles primary market remained quiet on Tuesday following the previous week in which $1.19 billion in new deals came to market.

No new deals were launched as of press time on Tuesday. There is only a small convertible preferred stock offering on tap and a private placement of convertible notes that priced after the market close Monday.

Landmark Infrastructure Partners LP plans to price a $50 million offering of $25-par series C floating-to-fixed rate cumulative perpetual redeemable convertible preferred units after the market close on Tuesday.

Price talk is for a rate of Libor plus 420 bps to Libor plus 470 bps, which equals an implied dividend of 6.5% to 7%, according to a market source.

The initial conversion premium is fixed at 15%. The convertible preferred units will float for the first seven years and then switch to a fixed dividend of 9%, according to a market source.

The offering is small and will not appeal to many money managers, a trader said.

Sorrento Therapeutics Inc. sold $120.5 million of convertible senior notes in a securities purchase agreement with accredited investors on Monday to yield 5%, up 0.17%, according to a company news release.

The convertible notes were issued alongside warrants to purchase 50% of the number of shares the notes are convertible into.

The strike price on the warrants is $8.77, representing a conversion premium of 125% over the conversion price of the notes.

The convertible notes will mature on the earlier of either five years or the date of the closing of a change of control of the company.

Red Hat Inc.’s 0.25% convertible notes due 2019 were the major volume movers of the secondary market on Tuesday after the Raleigh, N.C.-based software company reported fourth-quarter and year-end earnings results for fiscal year 2018.

The 0.25% convertible notes climbed more than 10 points on an outright basis early in Tuesday’s session. The notes were trading around parity, and the trades were most likely the result of people taking money off the table for financing, a market source said.

DISH Network Corp.’s struggling 2.375% convertible notes due 2024 and 3.375% convertible notes due 2026 were also among the most active of the day although with little movement in outright trading prices.

The high-volume trading activity occurred as DISH executives testify against the proposed Time Warner and AT&T merger.

While relatively unchanged on a dollar-neutral basis, Tesla, Inc.’s three tranches of convertible notes dipped to levels “not seen in a long time,” a market source said. Tesla will report delivery numbers for its Model 3 sedans, and there are rumors the company may be considering additional financing.

Red Hat’s earnings

Red Hat’s 0.25% convertible notes were the top volume mover of Tuesday’s session after the company released its fourth-quarter and year-end earnings reports after the market close Monday. “They had some very good earnings,” a market source said.

The notes were seen trading in a range of 211 to 222 during Tuesday’s session as stock gyrated between a low of $153 to $167.

The notes were trading just under parity, a market source said. “People may have been converting the bonds out for financing,” the source said of the trading activity.

Red Hat reported non-GAAP earnings of 91 cents per share on revenue of $772 million for the fourth-quarter of fiscal 2018, which beat analyst expectations of 81 cents per share on $762 million in revenue. Non-GAAP earnings per share for fiscal year 2018 was $2.98.

Red Hat expects revenue of $3.425 billion to $3.46 billion for fiscal year 2019 with non-GAAP earnings per share of $3.38 to $3.41, according to a company news release.

DISH active

DISH’s 2.375% convertible notes and 3.375% convertible notes were also among the top volume movers of Tuesday’s session although with little change in the convertible notes. DISH’s 2.375% convertible notes were wrapped around 87 in active trading during Tuesday’s session.

The Englewood, Colo.-based satellite service provider’s 3.375% convertible notes were wrapped around 95.5. DISH stock closed Tuesday at $37.25, an increase of 0.43%.

As DISH’s convertible notes saw heavy trading volume, its executives were on Capitol Hill testifying against the merger of AT&T and Time Warner.

DISH’s executive vice president of programming and media, Warren Schlichting, previously testified that the merger of AT&T and Time Warner would result in the loss of Turner networks from DISH’s platform, which would be detrimental to the company.

Those statements were challenged on Tuesday with AT&T-Time Warner’s top counsel quoting previous statements from DISH Network executives that such a loss would be a “non-event.”

The U.S. Department of Justice filed suit to block AT&T’s merger with Time Warner in November.

Tesla drops

While relatively unchanged on a dollar-neutral basis, Tesla’s three tranches of convertible notes dropped alongside the electric car manufacturer’s stock on Tuesday.

“They’re starting to get to levels we haven’t seen in a long time,” a market source said.

Tesla’s 0.25% convertible notes due 2019 dropped about 2 points outright to trade around 101 during Tuesday’s session.

Tesla’s 1.25% convertible notes due 2021 dropped about 3 points outright to trade around 103. Tesla’s 2.375% convertible notes due 2022 dropped about 4 points outright to trade around 110, a market source said.

Tesla stock closed Tuesday at $279.18, a decrease of 8.22%. Tesla is expected to report delivery numbers for its Model 3 sedans next week.

Tesla previously said it will be producing 5,000 Model 3 sedans per week by the second quarter.

Analysts have lowered their expectations for production. There are rumors the company may be in need of additional financing, a market source said.

Mentioned in this article:

DISH Network Corp. Nasdaq: DISH

Landmark Infrastructure Partners LP Nasdaq: LMRK

Red Hat Inc. NYSE: RHT

Sorrento Therapeutics Inc. Nasdaq: SRNE

Tesla, Inc. Nasdaq: TSLA

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