Live Nation convertible offering eyed; Silicon Labs expands; Tesla, Illumina in focus

By Abigail W. Adams

Portland, Me., Jan. 29 – The convertible primary market returned to action on Wednesday with one new deal on deck.

Live Nation Entertainment Inc. planned to price $350 million five-year convertible notes after the market close on Wednesday.

While the deal was heard to be doing well during the subscription process with books closing in the early afternoon, sources took issue with the high premium on the notes.

As the secondary space awaited the first new paper of the week, earnings related news was the primary mover of the secondary space.

Silicon Laboratories, Inc.’s 1.375% convertible notes due 2022 dropped outright but expanded on a dollar-neutral, or hedged, basis following an earnings miss.

Illumina, Inc.’s and Tesla, Inc.’s convertible bonds were also active with both companies slated to report earnings after the market close.

Luckin Coffee Inc.’s 0.75% convertible notes due 2025 were again in focus in the secondary space with the notes dropping back below par after rebounding during Monday’s session.

Live Nation eyed

Live Nation Entertainment plans to price $350 million five-year convertible notes after the market close on Wednesday with price talk for a coupon of 1.875% to 2.375% and an initial conversion premium of 47.5% to 52.5%, according to a market source.

The deal was being marketed with assumptions of 275 basis points over Libor and a 28% vol., according to a market source.

At 50 bps, the borrow is in good condition, sources said.

Using underwriters’ assumptions, the fair value of the deal modeled out to about 100.65 at the midpoint of talk, a source said.

However, the credit spread seemed conservative.

Using assumptions of a credit spread of 200 bps over Libor and a 30% vol., the deal modeled out to about 104 at the midpoint of talk, the source said.

Live Nation is a single B credit. However, its junk bonds trade tight, the source said.

While the deal modeled cheap, sources took issue with the premium, which one source called “ridiculous” and another called “foolishly high.”

Live Nation is a repeat issuer of convertible notes and there are much cheaper ways to play the name, a source said.

“People are just flabbergasted,” a source said. “They’re really pushing it.”

The pricing of the deal appeared to target hedge funds with the 2.5% convertible notes due 2023 much more attractive for outright players, a source said.

While the premium is hefty, “that’s what you get in this low-rate environment,” another source said.

Despite the high premium talk, the deal was heard to be doing well during bookbuilding with books closing in the early afternoon.

The deal is believed to be pricing toward the midpoint of talk with a coupon of 2% and an initial conversion premium of 50%, a source said.

While Live Nation prepped its latest convertible offering, its 2.5% convertible notes due 2023 were soft in the secondary space.

The notes were changing hands at 121.375 and were contracted about 0.375 point on a dollar-neutral basis, a source said.

Live Nation stock closed Wednesday at $70.57, a decrease of 2%.

Silicon Labs expands

Silicon Labs’ 1.375% convertible notes due 2022 were active on Wednesday with the notes down outright but expanded on a dollar-neutral basis as stock sank following an earnings miss.

The 1.375% notes shaved off more than 7 points outright with stock down about 10%. They were changing hands just shy of 125 in the mid-afternoon.

Silicon Labs stock traded to a high of $112.01 and a low of $102.15 before closing the day at $102.76, a decrease of 13.28%.

The notes expanded about 0.25 point dollar-neutral on the stock move, a market source said.

Silicon Labs stock tanked following a top and bottom line earnings miss.

The Austin, Tex.-based semiconductor company reported earnings per share of 84 cents versus analyst expectations for earnings per share of 89 cents.

Revenue was $219.4 million versus analyst expectations for revenue of $222.1 million.

Illumina, Tesla eyed

While Silicon Labs’ convertible notes saw one of the largest price movements of the day following its earnings report, market players were eyeing Illumina’s and Tesla’s convertible notes with both companies set to release earnings after the market close.

Illumina’s 0.5% convertible notes due 2026 were changing hands around 107.375 on Wednesday.

Illumina stock closed Wednesday at $131.30, a decrease of 0.31%.

The notes were slightly weaker heading into earnings, a source said.

The 0.5% notes are heavily shorted, and the buying activity may have been driven by players covering their positions in expectation of the results.

Tesla’s convertible notes were also active on the eve of its highly anticipated earnings results.

The 2% convertible notes due 2024 again topped double par in the late afternoon with stock up more than 3%.

The 2% notes were changing hands just north of 200.125 in the late afternoon.

Tesla’s 1.25% convertible notes due 2021 rose to 168 in the late afternoon. The 2.375% convertible notes due 2022 rose to 188.5.

Tesla stock traded to a low of $567.43 and a high of $589.80 before closing the day at $580.99, an increase of 2.49%.

Stock has steadily ripped higher throughout late December and January as Tesla opened a new factory in Shanghai and deliveries beat analyst expectations.

However, many have questioned how long the momentum would last. The market was betting on a 12% move post earnings, a market source said.

Luckin down again

Luckin Coffee’s 0.75% convertible notes due 2025 again saw active trading in the secondary space.

While the notes topped par in pre-market activity, they were again below par with the company’s ADS under pressure soon after the opening bell.

The 0.75% notes were changing hands at 97.75 early in the session and 97.875 in the late afternoon, sources said.

Luckin’s ADS traded to a low of $37.91 shortly after the opening bell. They traded to a high of $40.19 before closing the day at $37.31, a decrease of 4.39%.

Mentioned in this article:

Illumina, Inc. Nasdaq: ILMN

Live Nation Entertainment Inc. NYSE: LYV

Luckin Coffee Inc. Nasdaq: LK

Silicon Laboratories, Inc. Nasdaq: SLAB

Tesla, Inc. Nasdaq: TSLA

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