Tesla in focus, shares surge after hours; Chemed pulls back in line with stock; Genco down

By Rebecca Melvin

New York, Feb. 19 - U.S. convertibles remained fairly quiet during Wednesday's session, with market players focused on Tesla Motors Inc. and other issuers that have just reported or will report quarterly results, sources said.

Tesla's convertibles were poised for a potentially big move on the back of earnings expected after the market close, a sellside trader said. After the close, Tesla reported better-than-expects results that sent shares up 12%.

DryShips Inc. was steady in active trade after the Athens-based dry bulk shipping and tanker company reported mixed quarterly results that missed on earnings but beat on revenue.

But fellow shipping company Genco Shipping & Trading Ltd. saw its distressed 5% convertibles due 2015 trade down to the low 50s from about 57 to 58 after the New York-based dry bulk shipping company announced that it did not make a $3.1 million coupon payment to convertibles holders as scheduled Feb. 18. It also said it struck a waiver of default with term loan lenders over the missed coupon.

Genco cited continuing weakness in charter rates for the missed payments and said that it was going to use the 30-day grace period to pay the coupon to review its financing options and consider restructuring alternatives.

Chemed Corp.'s convertibles pulled back in line with the underlying shares of the Cincinnati-based hospice operator following a bounce Tuesday on improved guidance for full-year earnings.

Chemed's 1.875% convertibles, which mature May 15, traded between 106.45 and 106.78 in the early going, which was in line with shares that pulled back about 3% following a 10.5% spike on Tuesday.

The Chemed convertibles had traded up to about 108 versus a share price of $84.93 on Tuesday from 103.5 bid, 104.5 offered at the beginning of the day, which represented a 1-point-plus expansion on a hedged basis.

Elsewhere, Mylan Inc.'s 3.75% convertibles due 2015 traded up in line with the underlying shares of the Canonsburg, Pa.-based generic and branded drug maker. The Mylan bonds are trading well above triple par and were seen tracking the underlying shares on a 75% to 80% delta.

"They are deep in-the-money and are going to go down or up in line with the shares," a trader said.

The primary market was quiet on Wednesday. But syndicate sources said that an issue that has been on the calendar for a couple of weeks was pricing after the market close. American Energy - Utica LLC, an affiliate of American Energy Partners LP, planned to price $500 million of seven-year convertible subordinated notes a day ahead of schedule. The coupon was initially talked at 3% to 4%. No further information about the deal or its terms was available, a syndicate source said.

Tesla posts strong earnings

Tesla's 1.5% convertibles due 2018 traded last at 169.25 versus an underlying share price of $195.50. But shares surged in after-hours trade to $216.50, which was up $22.89, or 11.8%.

Last Friday, the Tesla bonds traded at 171.48 with the shares at $198.23.

"Tesla reports earnings tonight and people think that that will spur a move," a trader said.

The trader said that those that set them up neutrally might see a big move.

The delta hedge on which market players set them up depends on their view of credit quality and volatility, but generally speaking market players were on a delta of 82% to 83% going into the earnings announcement.

"It will depend on the move in the underlying shares, and it won't move that much, but they will move on a dollar-neutral basis, despite the high-dollar stock price," the trader said.

Typically bonds that are in-the-money like Tesla move only in line with the underlying shares.

He said that a dollar-neutral move depends on the availability to borrow shares, and as long as the borrow holds up, there is a likelihood that the Tesla report spurs more than an in-line move.

During the regular session, Tesla shares settled lower by nearly 5%. But shares surged after the market close after the Palo Alto, Calif.-based electric car maker reported a loss of $16.3 million, or 13 cents per share, for the fourth quarter versus a loss of $89.9 million, or 79 cents per share, in the year-earlier period.

On an adjusted basis, Tesla said it earned 33 cents per share, which was 10 cents better than analysts' expectations for adjusted earnings of 23 cents per share.

Revenue more than doubled to $615.2 million, which fell short of analysts' estimates for $683.9 million in revenue.

Tesla's margins improved due to lower costs, the company said.

Tesla has a tendency to have big moves; if you set them up neutrally, you might benefit from a big move," a trader said.

DryShips steady post earnings

DryShips' 5% convertibles due December 2014 traded at 98.875 and thereabouts, which was about unchanged on Tuesday's closing level, according to Trace data. Shares of the shipping company fell 6%, or 23 cents, to $3.48.

For the latest quarter, DryShips lost $24.4 million, or 6 cents a share, which was worse than the 2-cent-per-share loss that some analysts had expected. But it was better than the loss of $129.8 million, or 34 cents per share, for the year-earlier period.

Revenue for the dry bulk business rose 30% to $45.4 million for the fourth quarter, while for the tanker business it was almost double to $11.9 million.

DryShips reported a net loss for the 2013 full year of $223.1 million, or 58 cents a share.

Genco drops

Genco Shipping's 5% convertibles settled in the low 50s, a New York-based trader said.

Early in the session, it traded down to 45 and 46 but also up at 53.75 and 54.25, according to Trace data, but that was still lower compared to 56.78 to 58 on Tuesday.

Genco shares fell by a greater magnitude, swooning by 24%, or 43 cents, to $1.37.

The Genco convertibles had traded at one point in the mid 30s in September when the shares were $4.00 and change.

Mentioned in this article:

Chemed Corp. NYSE: CHE

DryShips Inc. Nasdaq: CHE

Genco Shipping & Trading Ltd. NYSE: GNK

Mylan Inc. NYSE: MYL

Tesla Motors Inc. Nasdaq: TSLA

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