Tesla’s new bond improves; Starwood Properties launches deal; FireEye adds outright

By Rebecca Melvin

New York, March 23 – U.S. convertibles trading action remained muted for a second straight day on Thursday as market players eyed Washington and the jockeying occurring among lawmakers and the Trump Administration ahead of a Congressional vote on the Republican’s health care bill slated for late in the day.

News on Thursday afternoon that the vote had been postponed until Friday sent stock markets into negative territory from being slightly positive.

In the primary market, Starwood Property Trust Inc. launched a $200 million offering of five-year convertible bonds after the market close.

One name that remained busy in the convertibles market despite the “wait and see” approach that was in effect was Tesla Inc.’s new, $850 million of convertibles, which priced last week. The new Tesla 2.375% convertibles have remained active since the issue debuted in the market last Friday. For most of that time, the bond has been under pressure, but after the market close on Thursday, the bond was said to have more buyers than sellers and pricing lifted by about 0.25 point on a dollar-neutral, or swap, basis.

At the close, the new Tesla was quoted at 98.5 bid, 99 offered. Shares closed down a few cents at $254.78.

Despite the overall quiet tone, there was also some trading of FireEye Inc.’s duo of convertible bonds in the convert space after Goldman Sachs upgraded the equity rating of the Milpitas, Calif.-based cybersecurity firm to “buy” from “sell.”

Both of the FireEye bonds trade on an outright basis. The FireEye 1.625% convertibles due 2035 traded at about 90, which was up 0.75 point to a point on an outright basis, a sellsider said, as the company’s common stock that underlies the bonds jumped 90 cents, or 8%, to $12.38. The shares closed up 70 cents, or 6%, at $12.19.

The FireEye 1% convertible notes due 2035 traded at 93.6, which was little changed to higher, according to Trace data.

The convertibles of Proofpoint Inc., the Sunnyvale, Calif.-based internet security services vendor, traded lower after Goldman Sachs downgraded that name.

The newer Proofpoint convertibles moved lower by about 0.25 point on a dollar-neutral, or swap, basis. While the older Proofpoint 1.25% convertibles “held in,” or traded flat against a $5.41, or 7%, drop in the underlying shares to $73.79.

The older bonds move on about a 100% delta.

Elsewhere, Lumentum Holdings Inc.’s 0.25% convertibles due 2024, which debuted in the market early this month, jumped another point on an outright basis early on Thursday to trade at 108.8, when shares of the Milpitas, Calif.-based maker of optical and photonic products were up 73 cents, or 1.4%, at $52.10. But those shares lost steam in tandem with the general compression in the market and those shares ended up only 5 cents, or 0.1%, at $51.50.

The newer Lumentum convertibles were seeing some outright buyers and hedged fund sellers, according to a New York-based sellsider.

“Outright buying continues to push those higher,” the sellsider said.

Other than that, the market was pretty quiet.

“There’s nothing going on; it’s dead,” the sellsider said.

He noted that it would be interesting to see what happens after a health care bill decision. He did not believe that any one sector would benefit or suffer more than any other sector. Instead, either financial markets will “rip” higher if the bill passes or they will tank if the bill is voted down, he said.

In the broader markets on Thursday, the major stock markets ended fractionally lower after trading in positive territory in the first half of the session. That followed a stable and positive session on Wednesday and a 1% or more plunge in the major stock market indices on Tuesday.

Tuesday’s outsized stock markets’ move was the biggest one-day selloff since the U.S. presidential election in November.

Market players were said to be poised to see the outcome of a Congressional vote on the Republicans’ American Health Care Act slated for late Thursday. One trader guessed that if the bill passes, then there will be a broad-based market rally because “people will start to believe” that other initiatives can pass through the legislature such as tax reform and other pro-business initiatives of the Trump Administration.

But if the bill does not pass, then there will be a knee jerk selloff, he said. Nevertheless, he expected that underlying market dynamics will remain in place, which have meant an upside bias in the stock markets.

New Teslas improve

“I would say that the most active name of the day was Tesla, the new ones. There were better buyers and they lifted from recent lows. That was most of the volume [for the day]” a New York-based trader said.

The Tesla 2.375% convertibles were quoted at 98.5 bid, 99 offered at the close, compared to the common stock of the company that underlies the bonds, which closed down a few cents at $254.78.

That compared to Wednesday’s close when the convertibles were seen at 97.75 to 98, versus a share price of $255.01, which was an improvement from about 97.5.

On Thursday, there was also some activity in the Tesla 1.25% convertible, or the B tranche, and they were up about 0.2 point at 93 earlier in the day.

“The Tesla Bs were up a little,” a sellsider said.

Mentioned in this article:

FireEye Inc. Nasdaq: FEYE

Lumentum Holdings Inc. Nasdaq: NITE

Proofpoint Inc. Nasdaq: PFPT

Starwood Property Trust Inc. Nasdaq: STWD

Tesla Inc. Nasdaq: TSLA

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