Convertibles trade sideways; Liberty Media pares early gain; Tesla drops; Splunk jumps

By Rebecca Melvin

New York, Nov. 22 – U.S. convertibles traded little changed on Friday, moving in step with U.S. stocks and bonds, which were also flat amid a lack of compelling news headlines, a New York-based market source said.

“It’s quiet,” the source said. “There is stuff trading, but its trading sideways. The market is basically unchanged.”

Liberty Media Corp.’s chunky new deal of debentures, exchangeable into shares of Sirius XM Holdings Inc., opened up in the early going but slipped back with shares toward par, market source said. The new paper traded up to 101 bid, 101.5 offered early against a share price of $6.96 and then traded back down to nearly 100.

Liberty priced an upsized $525 million of the 2.75% debentures due 2049, representing the second such deal in the market that was structured identically. Liberty also priced $400 million of debentures exchangeable into Sirius XM in 2018. That paper bears a 2.125% coupon.

The newer deal received a bit of push back regarding its deliverable, a market source said. Upon an exchange, Liberty may deliver Sirius common stock or the value in cash or shares of Liberty’s series C Liberty SiriusXM common stock, or any combination of shares of Sirius common shares, cash and/or shares of Liberty’s series C Liberty SiriusXM stock.

This means that if Liberty chooses to deliver its series C stock, which has less value than the Sirius stock, it will deliver more of the series C stock so as to equal the value of the Sirius stock. It’s the same structure as the earlier Liberty/Sirius exchangeable, which “was a very good deal,” the market source said.

The older Liberty debentures exchangeable into Sirius XM were seen lower by 2 points on a dollar-neutral basis since the deal was announced.

Elsewhere, Tesla Inc.’s convertibles traded lower with a drop in the underlying common shares after a disappointing unveiling of the electric carmaker’s pickup truck of the future.

Tesla’s 2% notes due 2024 fell nearly 6 points to 127.3 in volume flow that was second only to the new Liberty deal, according to Trace data.

The Tesla 1.25% convertible due 2021 fell 3.3 points to 111.3.

The Tesla shares fell $21.79, or 6.1%, to $333.04.

Investors were underwhelmed by a live demonstration of Tesla’s future pickup truck. During the demonstration, CEO Elon Musk was visibly surprised that the windows shattered when a metal ball was thrown at them to demonstrate their strength.

Meanwhile, Splunk Inc.’s convertibles and shares jumped after a positive quarterly earnings report.

Splunk’s sister convertible bonds traded up in good volume on a pop in the underlying stock. The Splunk 1.125% convertibles due 2025 traded up 5 points to 118.19, and the Splunk 0.125% convertibles due 2023 traded up 3.5 points to 113.8. Splunk shares jumped $13.66, or 11.8%, to $140.50.

The data analytics company reported revenue and earnings that beat analyst estimates and took its revenue guidance for the full year higher.

Liberty-Sirius paper

Liberty’s new paper traded around par as shares slipped through the session, closing at their lows.

The company priced an upsized $525 million of 2.75% debentures due 2049 that are exchangeable into shares of Sirius XM Holdings.

The Rule 144A deal priced at par and has an initial exchange premium of 27.5%, which represents pricing at the cheap end of initial talk for a 2.5% to 2.75% coupon and 27.5% to 30% initial exchange premium.

The offering was upsized from an initially talked $400 million, and the option to purchase additional debentures was raised to $78.75 million from $60 million.

Concurrently with the offering of debentures, Sirius XM Holdings agreed to repurchase 18,279,670 shares of its common stock at a discounted $6.76 per share. The amount of repurchased shares was talked at up to 20 million.

Upon an exchange, Liberty may deliver Sirius common stock or the value in cash or shares of Liberty’s series C Liberty SiriusXM common stock, or any combination of shares of Sirius common shares, cash and/or shares of Liberty’s series C Liberty SiriusXM stock.

J.P. Morgan Securities LLC and BNP Paribas Securities Corp. were active bookrunners of the deal, with Credit Agricole CIB, UBS Securities LLC, Credit Suisse Securities (USA) LLC, Deutsche Bank Securities Inc., Mizuho Securities USA Inc. and Citigroup Global Markets Inc. as passive bookrunners.

The notes are non-callable until Dec. 1, 2024, and there is a put at year five. They also have takeover protection and dividend protection at $0.01331 per share per quarter.

The proceeds are earmarked for general corporate purposes, including repurchase of Liberty SiriusXM common stock, potential mergers or acquisitions, interest payments on debentures offered and repayment of borrowings outstanding under its margin loan secured by shares of Sirius XM.

Liberty Media is an Englewood, Colo.-based media, communications and entertainment company. Sirius is a New York-based broadcasting company that provides satellite radio and online radio services.

The bond payout may be in Liberty’s series C SiriusXM stock, which has the ticker symbol “LSXMK.” The LSXMK stock has a lower value than Sirius stock, but the company would pay more to make the value equal regardless of the payout makeup, a market source said.

Mentioned in this article:

Liberty Media Corp. Nasdaq: LSXMK

Sirius XM Holdings Inc. Nasdaq: SIRI

Splunk Inc. Nasdaq: SPLK

Tesla Inc. Nasdaq: TSLA

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