Morning Commentary: Convertibles open year with decent trading volume; Ares Capital eyed

By Abigail W. Adams

Portland, Me., Jan. 2 – The convertibles secondary space opened the new year with decent trading volume.

There was about $58 million on the tape about one hour into Wednesday’s session, according to a market source.

Ares Capital Corp.’s convertible notes were in focus with holders most likely swapping out the soon-to-mature convertible notes with longer duration paper.

Ares Capital’s 4.375% convertible notes due Jan. 15, 2019 were trading at par with more than $8 million of the bonds on the tape.

The 3.75% convertible notes due 2022 also saw $8 million of bonds changing hands with trades between 99.75 and 99.875.

Ares Capital’s convertible notes are investment grade and holders most likely wanted a longer duration on the investment-grade paper, a market source said.

Ensco plc’s 3% convertible notes due 2024 were also active with about $5 million of the bonds on the tape early in the session.

The notes were trading with a 67 handle with a yield to maturity of 11.81%, a market source said.

The offshore drilling contractor has been under pressure alongside the broader energy sector as crude oil futures plummeted amid concerns of a supply glut.

Tesla Inc.’s 1.25% convertible notes due 2021 were also active with the notes dropping 6 points outright as stock dropped more than 8%.

The notes were changing hands at 106 with more than $5 million on the tape, a market source said.

Tesla stock was down to $305.51, a decrease of 8.2%, early in Wednesday’s session.

Tesla stock sank after the electric car manufacturer’s fourth-quarter deliveries for its Model 3 sedans missed analyst expectations.

Tesla reported deliveries of 63,150 Model 3s in the fourth quarter, which fell short of analyst expectations for 63,700 deliveries, Bloomberg reported.

Tesla also announced a price cut of $2,000 on its automobiles to offset a reduction in a federal tax credit, raising concerns about lowered demand.

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