Tesla 1.5% convertible edges up; Cemex lower outright, richens on swap; IGI Labs steady

By Rebecca Melvin

New York, Feb. 11 – Tesla Motors Inc.’s 1.5% convertibles were lower outright but gained another 0.25 point on a dollar-neutral, or hedged, basis on Wednesday as shares of the Palo Alto, Calif.-based electric car maker slipped ahead of its quarterly results reported after the market close.

On Tuesday, the Teslas had traded actively and were seen higher by about 0.25 point on a swap basis.

Tesla’s results on Wednesday missed estimates, and shares extended losses in after-hours action.

The Tesla Motors 1.5% convertible ended the session at about 178.7, which was down 2 points on an outright basis, according to Trace data.

Tesla’s two other convertible bond issues were mostly quiet ahead of the results, which showed a fourth-quarter loss of $16 million, or 13 cents per share, compared to 33 cents per share in the year-earlier period.

Revenue for the quarter was $1.1 billion, compared to $761 million in the year-earlier quarter.

Analysts had expected Tesla to report earnings of about 30 cents per share on revenue of about $1.21 billion.

Also improving on hedge amid lower outright pricing was Cemex SAB de CV. The Cemex A and B convertibles have richened up considerably in the last week, with an additional 0.5 point of richening notched on Wednesday. The catalyst was the Monterrey, Mexico-based cement producer’s latest earnings which were deemed credit positive given talk of further asset sales and debt reduction, a New York-based trader said.

IGI Laboratories Inc.’s 3.75% convertibles, of which $143.75 million priced in December, have been active in recent sessions, and on a dollar-neutral basis they were “pretty steady” amid some long-only sellers, a second New York-based trader said.

Newmont Mining Corp.’s 1.625% convertibles were also in trade and quoted at 104 versus an underlying share price of $24.20 for the Denver-based gold and copper mining company.

The Newmont bond has a negative yield of 0.03%, and investors are willing to hold it despite the 89% premium for fear of deflation, the trader said.

The risk is, however, that Newmont issues another convertible, the trader said. “I doubt investors would be happy to pay 0%, up 85%.”

Market players anticipate new issuance to pick up now that earnings season is just about finished and companies are coming out of their quiet periods.

“Keep your ear to the ground; there should be some new issuance over the next couple of days, and that would be a big driver for us,” a trader said.

Tesla’s 1.5% bond better

Tesla’s 1.5% convertibles due 2018 were down about 5 points on an outright basis in the early going on Wednesday, trading at 175.6 from about 180 to 181 on Tuesday. But on a hedged basis that was up 0.25 point, a New York-based trader said.

Tesla shares were down $8.53, or 4%, at $207.76 at that point.

Later the bonds were seen at 178.7, and shares pared losses, closing down $3.49, or 1.6%, at $212.80.

The Tesla 1.5% convertible is a “volatility play on tonight’s earnings,” the trader said.

But the Tesla 0.25% convertible due 2019, or the A tranche, and the Tesla 1.25% convertibles due 2021, or the B tranche, were mostly quiet.

“The Teslas were moribund ahead of earnings outside of the initial 0.25 point pop in the 1.5% bonds earlier today,” a trader said.

A second source said that most market players were “already set up,” and awaiting the earnings news before making any further decisions.

In its fourth-quarter and full-year 2014 shareholder letter, Tesla said that it had built 11,627 vehicles in the fourth quarter and achieved its production target of 35,000 Model S vehicles in 2014.

But it was unable to deliver all of those cars due to a combination of customers being on vacation, severe winter weather and shipping problems. As a result about 1,400 vehicles shipped in December and were delivered in the first quarter.

Fourth-quarter results reflect a delivery shortfall, one-time manufacturing inefficiencies and the impact of the strong dollar, the company said in its shareholder letter.

Looking ahead, the company said it expects to deliver about 55,000 Model S and X vehicles in 2015, representing more than a 70% increase over 2014. About 40% of the deliveries are planned for the first half, with first-quarter production expected to be about 10,000 vehicles.

Cemex continues to richen

Cemex’s 3.25% convertibles due 2016, or the A tranche, traded last at 114.1, which was down about a point on an outright basis but better on a hedged basis by 0.5 point.

The Cemex 3.75% convertibles due 2018, or B tranche, were last at 118.9, which was down nearly 2 points on an outright basis. This issue was also better by 0.5 point on a hedged basis.

The Cemex 4.875% convertibles due 2015 are generally less actively traded, and they were steady around 100.7.

Cemex shares ended down 21 cents, or 2.2%, at $9.52.

“We’ve been pretty active in Cemex with the revaluation on earnings, and investors getting more comfortable with the credit,” a New York-based trader said.

The Cemex bonds have richened up amid long-only buyers and hedge fund sellers taking profits, he said.

“They came out saying that they are going to do more asset sales and take out debt,” he said, and as a result the convertibles have outperformed the equity in the last week.

IGI Laboratories steady

IGI Laboratories’ 3.75% convertibles due 2019 were seen ending Wednesday at 115, with the underlying shares at $10.67.

Shares of the Buena, N.J.-based specialty generic pharmaceutical company had slipped 19 cents, or 1.8%, on the day, but for the last month, they have been on a tear higher.

With the shares up, the bond price has been “pretty steady,” a New York-based trader said.

They have been pretty active and moving in line, amid some long-only sellers, the trader said.

Mentioned in this article:

Cemex SAB de CV NYSE: CX

Newmont Mining Corp. NYSE: NEM

IGI Laboratories Inc. NYSE: IG

Tesla Motors Inc. Nasdaq: TSLA

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