New deals from Encore, Viavi, Silicon Labs and Square on tap; Tesla stock downgraded

By Stephanie N. Rotondo

Seattle, Feb. 27 – The convertible bond market kicked off the new week by adding several deals to the forward calendar.

Early in the day, Encore Capital Group Inc. announced plans to sell $125 million of convertible senior notes due 2022.

Price talk is for a yield of 3.25% to 3.75% and an initial conversion premium of 30% to 35%.

BofA Merrill Lynch, Credit Suisse Securities (USA) LLC and Morgan Stanley & Co. LLC are running the books.

Ahead of pricing – expected after the session’s close – the company’s stock was off a dime at $35.05.

Viavi Solutions Inc. also said it was bringing a deal, a $400 million offering of convertible senior notes due 2024.

Price talk on that issue is for a yield of 0.5% to 1% and an initial conversion premium of 32.5% to 37.5%.

J.P. Morgan Securities LLC, Morgan Stanley and Credit Suisse are the bookrunners.

Viavi’s shares declined 46 cents, or 4.41%, to $9.98.

Both deals are Rule 144A offerings.

Pricing details were not available as of press time.

After the market closed, another couple of deals entered the pipeline.

Silicon Laboratories Inc. announced a $350 million offering of five-year convertible senior notes, with a yield talked at 1.25% to 1.75% and an initial conversion premium of 32.5% to 37.5%.

Goldman Sachs & Co. LLC and Wells Fargo Securities LLC are leading the deal.

Prior to the announcement, the company’s stock lost a dime, closing at $72.40.

And, Square Inc. said it would price $350 million of convertible senior notes due 2022.

Price talk is for a yield of 0.375% to 0.875% and an initial conversion premium of 30% to 35%.

Goldman and JPMorgan are the bookrunners.

Square’s stock improved 50 cents, or 2.87%, to $17.93.

Like Encore and Viavi, both deals will be done via a Rule 144A offering.

Silicon and Square are expected to price after Tuesday’s close, according to a market source.

As for the secondary market, a trader said dealings were limited, even in names like Tesla Inc., which saw its stock get hit after Goldman Sachs lowered the equity rating to “sell” from “neutral.”

“Goldman had some unkind things to say about Tesla,” the trader said.

Specifically, Goldman cited concerns about the company’s roll-out of its Model 3 sedan, as well as its SolarCity acquisition and its “unproved” benefit to the company.

AmTrust Financial Services Inc.’s convertibles were also on the weaker side, as the company delayed filing its annual report due to issues with its internal controls.

Meanwhile, Nabors Industries Ltd.’s 0.75% convertible notes due 2024 managed to gain ground, rising a point outright to 97.25.

The company’s underlying shares traded up 43 cents, or 2.94%, to $15.05.

Last week, Nabors posted a narrower-than-expected loss and revenues that beat analysts’ expectations.

Tesla declines

Tesla’s convertible bonds, as well as its equity, got hit on Monday after a Goldman Sachs analyst downgraded the stock.

The 1.25% convertible notes due 2021 traded at 93.88, “in a point, 1¼ points outright,” a trader said.

The trader noted that the trade occurred versus a stock price of $243.90.

The 1.625% convertible notes due 2019 – linked to SolarCity – were “off a little bit over a point” at 89.25, according to the trader.

The underlying stock meantime dropped $10.77, or 4.19%, to $246.23.

The Goldman analysts – led by David Tamberrino – cut the equity rating to “sell” from “neutral,” citing near-term concerns about the launch of the company’s Model 3. The analysts are expecting that the launch will be delayed, which will likely further accelerate Tesla’s cash burn.

The research note also mentioned that the company plans to raise more capital before the end of the year.

“We see room for shares to de-rate as the Model 3 production launch likely disappoints and as an unproven SolarCity business model likely weighs on the company’s focus/results,” said Tamberrino.

AmTrust softens

AmTrust Financial said on Monday that it needed more time to file its annual report, due to inaccuracies and weaknesses found in its internal controls.

Additionally, the company said it would disclose material weaknesses in its upcoming 10-K.

On the news, the company’s 2.75% convertible notes due 2044 traded at 80.616 versus a share price of $23.42, according to a trader.

“The nuke is about 2½ points higher so the material weakness language had an effect,” the trader said.

Another market source saw the 2.75% convertibles with an 80 handle, which was deemed an 8-point decline.

The source also pegged the 5.5% convertible notes due 2021 at 177.75, a loss of 42½ points outright.

AmTrust also disclosed that it was making “immaterial corrections” on its reports from 2012 to 2015.

Mentioned in this article:

AmTrust Financial Services Inc. Nasdaq: AFSI

Encore Capital Group Inc. Nasdaq: ECPG

Nabors Industries Ltd. NYSE: NBR

Silicon Laboratories Inc. Nasdaq: SLAB

Square Inc. NYSE: SQ

Tesla Inc. Nasdaq: TSLA

Viavi Solutions Inc. Nasdaq: VIAV

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