Short-duration paper in focus; Ares eyed; Tesla tumbles outright, holds dollar-neutral

By Abigail W. Adams

Portland, Me., Jan. 2 – The convertibles secondary space opened the new year with decent trading volume with $58 million on the tape early in the session and $318 million on the tape by the late afternoon, sources said.

Short-duration convertible notes continued to be the theme of the secondary space.

Ares Capital Corp.’s convertible notes were among the most actively traded during Wednesday’s session with holders swapping out the soon-to-mature convertible notes with the company’s longer duration paper.

Prospect Capital Corp.’s 5.875% convertible notes due Jan. 15, 2019, Royal Gold Inc.’s 2.875% convertible notes due June 15, 2019 and Arconic Inc.’s 1.625% convertible notes due Oct. 15, 2019 were also active.

Ensco plc’s 3% convertible notes due 2024 saw a flurry of activity early in Wednesday’s session although activity tapered into the afternoon.

Tesla Inc.’s convertible notes tumbled outright but held dollar-neutral as stock tanked after the company announced a price cut on its automobiles and missed analysts’ projections for Model 3 deliveries in the fourth quarter.

Ares dominates

Ares Capital’s 4.375% convertible notes due Jan. 15, 2019 dominated activity in the secondary space with more than $18 million of the bonds on the tape by the late afternoon.

The bonds were largely trading at par, sources said.

The specialty finance company’s 3.75% convertible notes due 2022 were also active with some holders appearing to swap out the soon-to-mature notes for the longer duration paper, a market source said.

The 3.75% notes were trading between 99.75 and 99.875 with about $8 million of the bonds on the tape.

Ares Capital’s convertible notes are investment grade and holders most likely wanted a longer duration on the investment-grade paper, a market source said.

Short-duration

Short-duration convertible notes continued to be the theme of the secondary space with trading activity focusing on soon-to-mature issues, a market source said.

Prospect Capital’s 5.875% convertible notes due Jan. 15, 2019 were active with more than $10 million on the tape.

The notes were trading at par with a 5.7% yield to maturity.

Royal Gold’s 2.875% convertible notes due June 15, 2019 were trading just north of par on Wednesday with more than $6 million of the bonds on the tape.

Arconic’s 1.625% convertible notes due Oct. 15, 2019 were trading around 99.5 with about $4 million of the bonds on the tape.

Ensco under pressure

Ensco’s 3% convertible notes due 2024 remained under pressure on Wednesday.

While the notes were active early in the session with about $5 million of the bonds on the tape, activity tapered into the afternoon.

The notes were trading with a 67 handle and a yield to maturity of 11.81%, a market source said.

The offshore drilling contractor has been under pressure alongside the broader energy sector as crude oil futures plummeted in the fourth quarter amid concerns of a supply glut.

Tesla holds

Tesla’s convertible notes were holding dollar-neutral as stock tanked on Wednesday after the company fell short of analyst expectations for Model 3 deliveries and announced a price cut on its automobiles.

The 1.25% convertible notes due 2021 were the most active of Tesla’s tranches.

The notes dropped 6 points outright with stock down more than 8% early in the session but pared its losses as the session progressed.

The notes were trading at 106 early Wednesday and were seen changing hands at 107.75 versus an equity price of $308.69 later in the afternoon, sources said.

The notes were improved about 0.125 to 0.25 point dollar-neutral, a market source said.

Tesla stock traded as low as $298.80 on Wednesday but pared its losses to close the day at $310.12, a decrease of 6.81%.

SolarCity Corp.’s 1.625% convertible notes due Nov. 1, 2019 were down about 0.125 point, a market source said.

The notes were changing hands at 94 with more than $4 million of the bonds on the tape.

Tesla stock sank after the electric car manufacturer’s fourth-quarter deliveries for its Model 3 sedans missed analyst expectations.

Tesla reported deliveries of 63,150 Model 3s in the fourth quarter, which fell short of analyst expectations for 63,700 deliveries, Bloomberg reported.

Tesla also announced a price cut of $2,000 on its automobiles to offset a reduction in a federal tax credit, raising concerns about lowered demand.

Mentioned in this article:

Arconic Inc. NYSE: ARNC

Ares Capital Corp. Nasdaq: ARCC

Ensco plc NYSE: ESV

Prospect Capital Corp. Nasdaq: PSEC

Royal Gold Inc. Nasdaq: RGLD

Tesla Inc. Nasdaq: TSLA

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