Morning Commentary: IAC’s $1 billion convertible offering looks ‘cheap’; Tesla in focus

By Abigail W. Adams

Portland, Me., May 21 – As equities continued to seesaw on trade-related news, all eyes were on the convertibles forward calendar and the new deals coming down the pike.

IAC/InterActive Corp. plans to price a $1 billion two-tranche convertible notes offering after the market close on Tuesday. The deal looked cheap, sources said.

The megadeal from IAC will be followed by a $150 million offering from Veoneer, Inc. on Wednesday.

Meanwhile, while equity markets regained their footing on Tuesday due to an extension of limited relief to Huawei customers, Tesla Inc.’s convertible notes remained in focus in the secondary space and continued to trend lower alongside stock.

IAC looks cheap

IAC plans to price a $1 billion two-tranche convertible notes offering after the market close on Tuesday.

The offering consists of $500 million of seven-year exchangeable notes, which are talked to yield 1% to 1.5% with an initial exchange premium of 27.5% to 32.5%, according to a market source.

The tranche is being marketed with a credit spread of 250 basis points over Libor and a 32% vol., a market source said.

Sources pegged the deal 2.625 points to 2.75 points cheap at the midpoint of talk.

The offering also consists of a $500 million tranche of exchangeable notes due 2030, which are talked to yield 1.75% to 2.25% with an initial exchange premium of 27.5% to 32.5%.

The tranche is being marketed with a credit spread of 325 bps over Libor and a 30% vol.

Sources pegged the deal between 3.125 points and 3.375 points cheap at the midpoint of talk.

While some sources felt the credit assumptions were aggressive, the deal still looked cheap with a wider credit spread.

Using a credit spread of 275 bps over Libor and a 32% vol., the seven-year tranche still modeled about 2 points cheap, a market source said.

Using even more conservative credit spreads, both tranches would still model 1 point to 1.5 points cheap, a market source said.

“It should do well,” a market source said.

Veoneer on Wednesday

The megadeal from IAC will be followed on Wednesday by Veoneer’s convertible notes offering.

Veoneer plans to price $150 million of five-year convertible notes after the market close on Wednesday with price talk for a coupon of 3.75% to 4.25% and an initial conversion premium of 25% to 30%.

The deal is pricing concurrently with a $350 million common stock offering, which carries a greenshoe of $52.5 million.

Tesla down again

Tesla’s convertible notes remained in focus in the secondary space and continued to trend lower with stock again under pressure.

The 2% notes were down another 2 points outright to change hands around 88.25. More than $23 million of the bonds were on the tape by the late afternoon.

Tesla’s 1.25% convertible notes due 2021 were the second most active issue early in Tuesday’s session.

The notes were changing hands at 92 with more than $14 million of the bonds on the tape.

Tesla stock traded as low as $196.04 early Tuesday and was $199.21, a decrease of 3%, shortly before 11 a.m. ET.

Tesla stock continued to trend lower on Tuesday after Morgan Stanley analysts lowered their worst-case scenario for the stock to $10 from $97 due to lack of demand.

While Morgan Stanley analysts lowered the worst-case scenario, the price target remained constant at $230.

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