Investors eye Tesla’s short-dated notes as maturity looms; NXP merger still uncertain

By Rebecca Melvin

New York, July 24 – The convertibles of Tesla Inc. were in focus and holding in on Tuesday as investors eyed the upcoming maturity of Tesla’s 2.75% convertibles on Nov. 1, a New York-based trader said.

“Nothing is particularly active. But the short-dated ones are better bid as some people are defending the front end,” the trader said.

The Tesla notes due this year were seen at about 98 given concerns regarding the ongoing viability of SolarCity Corp. If there were no concerns those notes would be trading at about 99.75, the trader said.

The 2018 notes were originally issued by SolarCity and are now convertible into shares of Tesla, following the companies’ merger.

Tesla came under pressure on Monday after news reports that the Palo Alto, Calif.-based electric car maker has asked at least one supplier to return a significant portion of its payments since 2016 to help Tesla’s current financial position.

Tesla shares closed down $5.77, or 1.9%, at $297.43, extending a 3.3% drop on Monday.

A second New York-based trader commented, “SolarCity [convertibles] have always traded like the poor sister of TSLA issued paper. There have always been concerns that Tesla wouldn’t stand by them.”

Meanwhile, NXP Semiconductors NV’s 1% convertibles due 2019 were poised ahead of Wednesday’s expiration date of Qualcomm Inc.’s merger agreement, which was originally struck in October 2016.

A merger extension was approved in April when Qualcomm said that China had until July 25 to approve the deal, and if approval isn’t forthcoming it says it will not extend again and instead pay NXP a $2 billion deal termination fee.

“We’ve got our eyes on NXPI. With the trade war, the odds are 50/50 that the deal goes through,” a trader said.

China is the last of nine markets that need to approve the Qualcomm and NXP merger, and the fact that it has been bogged down there points to another consequence of the conflict between the United States and its trading partners, including China.

There was limited activity in the NXP convertibles on Tuesday, which printed within the recent range at 115 last. NXP shares closed down $4.43, or 4.2%, to $100.66, the lowest level since early June when shares reached about $120.00.

Citrix Systems Inc. was another candidate for trading activity ahead of the multinational software company’s earnings report expected to be released after the market close on Wednesday. But not much traded of the Citrix 0.5% convertible notes due 2019 on Tuesday.

“It trades a little bit below parity and has rotated into hedged fund hands,” a trader said.

The Citrix bonds were down about another 0.5 point to 148.85 last against shares that were off 42 cents, or 0.4%, at $107.60. During the session, the Citrix bonds traded mostly with a 149 handle and the last trade on Monday at 149.34, which was off 1.14 points on the day, according to Trace data.

Mentioned in this article:

Citrix Systems Inc. Nasdaq: CTXS

NXP Semiconductors NV Nasdaq: NXPI

Tesla Inc. Nasdaq: TSLA

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