Morning Commentary: Live Nation convertibles hit the market, trade up; Tesla dominates

By Abigail W. Adams

Portland, Me., Jan. 30 – Thursday opened with the first new paper of the week hitting the secondary space.

Live Nation Entertainment Inc. priced $350 million of five-year convertible notes at par to yield 2% with an initial conversion premium of 50% after the market close on Wednesday.

Pricing came toward the rich end of talk for a coupon of 1.875% to 2.375% and at the midpoint of talk for an initial conversion premium of 47.5% to 52.5%.

The new paper was active and putting in a strong performance in the secondary space.

The 2% convertible notes were changing hands between 100.5 and 100.75 with stock off slightly early in the session, a market source said.

Live Nation stock traded down to $69.88, a decrease of 0.98%, shortly before 11 a.m. ET.

However, the majority of trading activity was driven by outright accounts.

While Live Nation was the first new paper to hit the secondary space all week, focus was on Tesla Inc. following the electric car manufacturer’s blow-out earnings.

Tesla’s convertible notes accounted for more than $150 million of the $300 million reported volume early in the session with two of the three tranches trading above double par.

The 2% convertible notes due 2024 rose to 218 early Thursday.

The 1.25% convertible notes due 2021 were trading just shy of 183.

The 2.375% convertible notes due 2022 rose to 205.

Tesla’s stock skyrocketed on Thursday after earnings surpassed expectations on both the top and bottom lines in its fourth-quarter earnings report.

Tesla stock traded as high as $650.88 but was changing hands at $639.69, an increase of 10.17%, shortly before 11 a.m. ET.

“A lot of people made a lot of money off the name, and a lot of hedge funds got crushed on the short,” a source said.

With the convertible notes trading at such a high dollar-price, they will mostly move in line with equity, the source said.

Tesla reported earnings per share of $2.14 versus analyst expectations for earnings per share of $1.77. Revenue was $7.4 billion versus analyst expectations of revenue of $7 billion.

Tesla also reported it is ramping up its production of the Model Y with deliveries expected to start in March.

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