Morning Commentary: InterDigital convertibles on tap, look fair value; Tesla in focus

By Abigail W. Adams

Portland, Me., May 29 – While the convertible space was again slow as equities opened to another brutal session on Wednesday, the primary market returned to action with a new deal on deck.

InterDigital Inc. plans to price $350 million of five-year convertible notes after the market close on Wednesday with price talk for a coupon of 1.75% to 2.25% and an initial conversion premium of 27.5% to 32.5%, according to a market source.

The deal was heard to be in the market with a credit spread of 250 basis points over Libor and a 26% vol., according to a market source.

Sources pegged the deal fair value to 0.25 point cheap at the midpoint of talk.

However, some sources felt the credit spread was conservative.

InterDigital is a solid credit with plenty of cash on hand and good earnings, a source said. The deal could easily have come with a credit spread of 200 bps to 225 bps over Libor.

While some sources were surprised to see the deal given the volatility in the markets, it was heard to be wall-crossed with holders of InterDigital’s outstanding notes selling the old ones to buy the new.

Proceeds from the new offering are to be used, in part, to repurchase the mobile technology research and development company’s 1.5% convertible notes due 2020 in privately negotiated transactions.

The deal is also coming as a “happy meal” with $50 million in proceeds to be used to repurchase stock.

The 1.5% notes have $316 million outstanding, according to Trace data.

Meanwhile, trading volume in the secondary space remained relatively light with one name continuing to dominate activity – Tesla Inc.

Tesla’s convertible bonds accounted for nearly one-fourth of the total volume on the tape, a market source said.

The notes were catching a bid and improving slightly on the heels of some stabilizing news for the company, the source said.

Tesla’s 2% convertible notes due 2024 were changing hands around 88¼ early in Wednesday’s session.

The 1.25% convertible notes due 2021 traded up to 91.875.

The 2.375% convertible notes due 2022 traded up to 90.

Tesla stock was $189.99, an increase of 0.68%, shortly before 11 a.m. ET.

While the speculation is wild, news stories continue to circulate about Tesla as a prospective takeover target, a market source said.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.