Tesla’s 0.25% convertibles ‘getting interesting,’ other notes gain; Supernus below par

By Abigail W. Adams

Portland, Me., Dec. 7 – Trading volume remained light in the convertibles secondary space with the roller coaster in equities continuing.

The Dow Jones industrial average was green at the market open but it quickly reversed course and closed the day down 558 points.

While the volatility has been great, credit remains shaky with market players nervous, a source said.

“When you start hearing recession talk, it puts a damper on everything,” the source said. And the recession chatter has started to increase from a variety of sources.

As the overall market struggled, Tesla Inc.’s stock continued to “rock and roll” for much of the session, a source said.

While stock came in by market close, it continued to flirt with the “magic number,” or the $359.87 conversion price on its 0.25% convertible notes due March 1, 2019.

The 0.25% convertible notes were the focus of trading on Friday with the 1.25% convertible notes due 2021 also active.

The equities of several convertibles issuers continued to see large stock moves on Friday.

Supernus Pharmaceuticals, Inc.’s 0.625% convertible notes due 2023 dropped below par on Friday after starting the week at 110.

The deal, which priced in March, was one of the outperformers of 2018.

Tesla’s ‘magic number’

Tesla’s 0.25% convertible notes due March 1, 2019 were the focus of trading activity on Friday with stock above the conversion price of the notes for much of the session.

However, stock came in to close the day just below the $359 conversion price.

“Those notes are getting interesting,” a source said.

The notes traded up to 110 early in the session but came in as the session progressed to close the day just shy of 108.

Parity on the 0.25% notes was 104 early in the session, a source said. However, parity dropped to 94 by the market’s close.

The notes were seen as expanded slightly dollar-neutral early in the session, but were unchanged to slightly contracted in the afternoon, sources said.

Tesla’s 1.25% convertible notes due 2021 were also among the volume movers of Friday’s session.

The notes traded up to around 119.5 early in the session but dropped down to 117.5 by market close.

The notes improved about 0.75 point dollar-neutral, a market source said.

While Tesla’s 2.375% convertible notes due 2022 were slow to trade during Friday’s session, they were also seen improved about 0.75 point dollar-neutral.

Tesla stock saw a volatile session on Friday. After closing Thursday at $363.06, stock posted gains for much of Friday’s session before coming in toward market close.

Stock traded as high as $379.49 but closed the day at $357.97, a decrease of 1.4%.

Tesla notified holders on Thursday that the 0.25% convertible notes would be settled half in cash and half in stock if the notes are converted at maturity.

All eyes will be on Tesla in the coming months.

If Tesla is able to convert out the 0.25% notes it will be a boon for its entire capital structure, a market source said.

Supernus below par

Supernus’ 0.625% notes dropped more than 13 points outright over the past week, closing the week below par as stock got hammered after the company announced clinical results for its ADHD medication.

While volume was light, the 0.625% notes traded down to 97 on Friday after dropping to par during Thursday’s session.

The notes were trading at 110 on Monday.

After a significant drop on Thursday, Supernus’ stock continued its downward momentum to close Friday at $36.53, a decrease of 9.89%.

Stock was also down 11.89% on Thursday.

Supernus stock has gotten crushed since the pharmaceutical company announced the clinical results from its phase 3 studies of a treatment for ADHD in children.

While clinical results were positive, they failed to meet investor expectations with little indication the new drug was more effective than already available generics.

Supernus priced a $402.5 million issue of the 0.625% convertible notes in March.

The notes briefly traded north of 120 in June when stock surpassed the conversion price of the notes.

Mentioned in this article:

Supernus Pharmaceuticals, Inc. Nasdaq: SUPN

Tesla Inc. Nasdaq: TSLA

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