New Cypress deal gains 2 points on swap; Tesla bonds lower outright, improve on swap

By Rebecca Melvin and Abigail Adams

New York and Portland, Maine, Nov. 2 – Cypress Semiconductor Corp.’s newly priced five-year convertible notes debuted on the secondary market on Thursday with midday trades between 102.5 and 103.25, a market source said. The convertibles were up about 2 points on a delta-neutral basis, as Cypress stocks increased 2.25%.

Back in established issues, Intel Corp.’s sister convertibles were unchanged in active trade, which continued to dominate the market. This has been the case for much of the week after the semiconductor company announced positive earnings and raised guidance on Friday.

There were about $50 million of each of those bonds changing hands with an abundance of outright sellers and hedged buyers, a New York-based trader said of Intel.

A trio of Tesla Inc.’s convertible bonds were lower outright but improved on a swap basis, with the Tesla 2019 notes, or the C tranche, outperforming with a 0.5 point gain on swap, a trader said.

The two other Tesla tranches were each up 0.25 point to 0.30 point.

“The Teslas got better with shares lower on disappointing quarterly results. On a heavy delta, with the stock down 7%, market players got an opportune time to buy back shares,” the trader said.

Tesla shares took a dive late Wednesday after the electric car maker missed earnings estimates and extended some production targets.

Tesla reported a loss of $619 million, compared to profit of $22 million for the same period last year. On an adjusted basis, the company lost $2.92 per share, which was significantly larger than the $2.28 per share consensus estimate of Thomson Reuters’ survey of analysts.

The Palo Alto, Calif.-based company had planned to be making 500 Model 3 sedans a week by the end of the year, but has pushed that target out to the end of the first quarter, citing problems related to its battery-pack assembly factory near Reno, Nev.

“The combined complexity of module design and its automated manufacturing process has taken this line longer to ramp than expected,” CEO Elon Musk wrote in a letter to shareholders about the third quarter.

The Tesla 1.25% convertibles due 2021 were 105.875 bid, 106.25 offered at the close, which was down about 4 points on an outright basis but up about 0.25 point to 0.3 point on swap.

The Tesla 2.375% convertible senior notes due 2022 were 114 bid, 114.5 offered, was down by about 5 points outright but better by 0.25 point to 0.3 point.

The Tesla 0.25% convertible senior notes due 2019, or the C tranche, was 104.25 offered, 104.75 bid, which was down a couple of points outright but better by 0.5 point on swap, the trader said.

Iconix Brand Group Inc.’s convertibles traded higher in early action as the underlying shares of the New York-based American brand management company plunged again.

The Iconix 1.5% convertibles due March 15, 2018 traded up to 79.375 to 79.5 early Thursday from a 77.5 close on Wednesday, according to Trace data.

Iconix shares were down 27 cents, or 13.4%, to $1.74. The hectic trading which has seen the stock and bonds gyrate sharply in this week’s sessions is related to the company’s licensing agreements with Wal-Mart.

Meanwhile, the convertibles of Fort Lauderdale, Fla.-based cloud computing company Citrix Systems Inc. improved on Thursday amid outright buyers.

Citrix’s 0.5% convertible notes due 2019 were about 0.375 point better, a trader said.

Cypress adds delta neutral

The new Cypress 2% convertibles due 2023 were up about 2 points on a delta-neutral basis, with the stock up about 2%, a market source said.

Cypress stocks continued to climb throughout the day and were up 2.31% at market close.

The $130 million in five-year convertible notes, due 2023, were “priced well” when they hit the primary market late Wednesday, with a 2% coupon and an initial conversion premium of 37.5%.

“It’s a hot deal. Everyone wants a piece of it,” the market source said.

The Rule 144A deal of senior unsecured notes was offered concurrent to privately negotiated exchange agreements with holders of an outstanding $128 million in Spansion LLC issued convertible notes with a 2% coupon due 2020. The San Jose-based semiconductor manufacturer acquired Spansion in a 2015 merger.

The outstanding notes will be settled through cash and stock offerings with Cypress expecting to pay out about $129.7 million and issue about 17 million common shares, according to a company announcement. Hedge funds will be covering-short in the coming days, as a result of the cash portion of the agreement.

Cypress’ new issue and settlement agreements are separate transactions, but holders of the retired notes have good cause to participate in the new deal, a market source said. The new issue carries a $20 million greenshoe.

Intel unchanged on delta

Intel’s two sister convertibles continued to dominate trading action in the convert space on Thursday – as has been the case for much of the week. Market players are piling in as it doesn’t look like the 2.95% bond is going to be called, and with the stock move, the bonds are being set up heavier.

Shares are up after the semiconductor company announced positive earnings and raised guidance last week.

There were about $50 million of each of the Intel bonds changing hands with an abundance of outright sellers and hedged buyers. But in terms of pricing, the bonds were little changed on a hedged basis, a trader said.

Both were trading in line on delta amid an abundance of outright sellers and hedged buyers.

With the 3.25% bonds being around double par, or 2 points less than parity, “outright players are taking the opportunity to take some money off the table. But it’s an interesting price for a hedge fund. For funds it is nominally positive,” the trader said.

On delta, the Intel 2.95% convertibles are now trading at 96% delta because the stock has run up so much, from a mid-80% delta previously.

Mentioned in this article:

Citrix Systems Inc. Nasdaq: CTXS

Cypress Semiconductor Corp. NYSE: CY

Iconic Brand Group Inc. Nasdaq: ICON

Intel Corp. Nasdaq: INTC

Tesla Inc. Nasdaq: TSLA

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