Tesla lags from issue; Yandex slumps on Russia-Ukraine conflict; Akorn down after earnings

By Rebecca Melvin

New York, March 3 - Tesla Motors Inc.'s two new convertibles pared losses Monday from early lows as shares reversed losses, but the new bonds, which debuted in the market on Friday, remained below par and still lagged on a dollar-neutral, or hedged, basis from issue, a New York-based trader said.

The Tesla 0.25%, five-year convertibles ended the day at about 99.5 versus a share price of $250.56, which was "in" about 0.125 point from issue, a New York-based trader said. On an outright basis, it improved from early prints at 98.

The longer-dated Tesla 1.25% convertibles ended the day at about 98.625 versus the underlying share price of $250.56, which was down about a point from issue on a hedged basis, the trader said. The close represented an improvement on an outright basis from an early 3-point drop to 96.566, according to Trace data.

Yandex NV was in trade, and the Russian convertible bond "closed down a bunch to 96" along with a slide in the underlying shares, as Russia's financial markets in general suffered on worries over that nation's military activity in the Ukraine's Crimea border region.

Elsewhere, Akorn Inc.'s 3.5% convertibles due 2016 were down a good chunk on an outright basis to 263.469, according to Trace data, and also lower on a dollar-neutral, or hedged, basis by about 0.25 point, a trader said early in the session.

Shares of the Buffalo Grove, Ill.-based pharmaceutical company fell $2.87, or 11%, at $22.95 in the early going after reporting earnings that met expectations but provided weak forward guidance.

"It's still early yet," the trader said about the market overall, but "things are pretty quiet."

But the Cemex SAB de CV convertibles strengthened on the heels of news that holders are expected to convert about $280 million of the Cemex 4.875% convertible subordinated notes due 2015. The company will pay shares and no cash to holders for the conversions.

Meanwhile, Allegheny Technologies Inc. also changed hands and looked slightly higher with the underlying shares lower for the Pittsburgh-based specialty steelmaker.

Endologix Inc.'s 2.25% convertibles due 2018 traded at 95.5, which was up 0.5 point on an outright basis. The print represented something of a bounce after a drop in tandem with a steep slide in the underlying shares on Friday after reporting disappointing fourth-quarter earnings.

Equities fell on Monday but ended off their lows amid worries over the intensifying conflict in Ukraine's Crimea region.

The Ukraine, which ousted its Russian-allied leader, Viktor F. Yanukovych, and established a new government last week, said Russia had stepped up aggressive military activities in border areas of the Crimea and that Russia was demanding Ukraine's own forces in Crimea surrender.

Russia denied that it made such a demand and largely ignored warnings from Western leaders against aggression, including president Barack Obama, who said that he is examining economic and diplomatic responses that will have the negative effect of isolating Russia.

Ukraine's acting president, Oleksandr Turchynov, said that officers in Crimea had high morale and would defend themselves if necessary. "Nobody will ever give up Crimea," he said.

The Dow Jones industrial average ended down 153.68 points, or 0.9%, at 16,168.03; the S&P 500 stock index fell 13.72 points, or 0.7%, at 1,845.73, and the Nasdaq stock market lost 30.82 points, or 0.7%, at 4,277.30.

Tesla lags from issue

Tesla's newer 0.25% convertibles due 2019 ended Monday at about 99.5 versus an underlying share price of $250.56, which represented a contraction of about 0.125 point from issue on a dollar-neutral, or hedged, basis, a New York-based trader said. On an outright basis, the 2019 notes improved from early Monday prints at 98.

The longer-dated Tesla 1.25% convertibles due 2021 ended the day at about 98.625 versus the underlying share price of $250.56. That level represented a loss of about a point on a dollar-neutral basis. Both issues were seen trading on a delta of about 60% to 65%.

The longer paper improved from an early Monday print at 96.566, which represented a 3-point decline, according to Trace data.

A trader said that the weakness in the bonds is simply a function of supply. "There's a bit too much of it," he said.

Tesla priced $2 billion of the notes in base deals late Thursday, or $800 million of the shorter A notes and an upsized $1.2 billion of the longer B notes.

In addition, Tesla has an older $660 million convertible with a 1.5% coupon that priced last March. The older paper was said to be mostly unchanged on a dollar-neutral basis in the early going but was lower outright at about 200.

Tesla shares were shaky early on but recovered during the session to end higher by $5.75, up 2.4%.

"There's just too much of it," he said.

Early Monday both the A and B bonds were down about 0.25 point to 0.375 point, assuming a delta of 60% to 65%, according to a New York-based trader.

After that the A bonds improved on hedge, while the B bonds got worse.

There is a greenshoe that has not yet been exercised for up to $300 million, or $120 million for the shorter-dated tranche and $180 million for the longer-dated paper.

Goldman Sachs & Co., Morgan Stanley & Co. LLC, J.P. Morgan Securities LLC and Deutsche Bank Securities Inc. were the joint bookrunners of the registered deal.

Yandex slumps

The Yandex 1.125% convertibles due 2018 fell to about 96 with shares of the Russian internet search engine company dropping $5.27, or 14%, to $32.23.

On Jan. 22, the Yandex bonds changed hands at 110 with the underlying shares at $43.02.

The Dutch-based internet company for Russia and internationally priced the bonds only in December. The $600 million deal was brought Goldman Sachs & Co. and distributed under Rule 144A and Regulation S.

Akorn comes 'in'

The Akorn 3.5% convertibles due 2016 printed at 263.469 early Monday, according to Trace data.

Akorn shares fell $1.62, or 6.7%, to $24.10.

That represented a contraction on a hedged basis of about 0.25 point.

The maker of diagnostics and therapeutics in ophthalmology, antidotes and anti-infectives reported fourth-quarter results that were in line with estimates, but it guided 2014 below expectations, and shares plummeted 15% in early trading.

The company said earnings were 14 cents a share, which was 1 cent better than the year-earlier quarter and matched analysts' estimates. Revenue rose 19% to $85 million, which edged analysts' estimates for $83 million. For the full 2013, sales rose 24% to $318 million while net income climbed 6% to 55 cents a share.

Akorn guided 2014 sales at $540 million to $560 million and earnings at 76 to 79 cents a share. That was below analysts' estimates for revenue of $576 million and earnings of 85 cents.

Mentioned in this article:

Allegheny Technologies Inc. NYSE: ATI

Akorn Inc. Nasdaq: AKRX

Cemex SAB de CV NYSE: CX

Endologix Inc. Nasdaq: ELGX

Tesla Motors Inc. Nasdaq: TSLA

Yandex NV Nasdaq: YNDX

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