Convertibles steady despite slip in stocks; Gilead active ahead of maturity; Tesla firmer

By Rebecca Melvin

New York, April 5 – U.S. convertibles were little changed on Tuesday as stocks remained in pullback mode from year-to-date highs notched last week.

“Things are pretty firm, and until there is a change in risk pricing or there are more offerings, things continue to be pretty firm, pretty good in convertibles,” a New York-based trader said.

Gilead Sciences Inc.’s 1.625% convertibles, which mature May 1, 2016, were trading actively and last seen at 427, or less than a point under parity, as outright buyers took advantage of the strength in the underlying shares to be involved there, the trader said.

“It is day three of the averaging period and the bonds are going away, with April 27 the end of the conversion period,” he said.

Gilead shares traded higher by as much as 2.6% in the early going but ended higher by only 1.4% at $95.57.

Red Hat Inc., which is one of the convertible market’s more liquid convertible names, traded down on an outright basis but was flat, or in line, on a swap basis.

Red Hat was one of several “on-the-run” convertible issues that was trading on Tuesday, a trader said. The Red Hat 0.25% convertibles due 2019 traded at 124.4, which was down a point on the day but in line with a $1.22, or 1.6%, drop in the underlying shares to $74.06.

The new Anacor Pharmaceuticals Inc. paper, which debuted in the market on Friday, is already up to 112, adding another almost 2 points on Tuesday with the underlying shares also adding 2% to $62.86.

Elsewhere, Tesla Motors Inc.’s convertibles remained firm on the back of news regarding initial orders for the Palo Alto, Calif.-based electric car maker’s new Model 3 electric sedan, which is going into production next year.

Iconix Brand Group Inc.’s 2.5% convertibles traded at 100, which was up 0.25 point, and LinkedIn Corp. traded up about 0.25 point to 90.8.

Also for a yield play, EZCorp Inc. was in the crosshairs. EZCorp’s 2.125% convertibles, of which $200 million price in 2014, were lower in tandem with lower shares, at 67 compared to 68 on Monday but higher than the level that existed prior.

Finally, SunEdison Inc. shares rebounded back up to $0.42 but slipped back to close at $0.26, which was up 23% on the day, as the beleaguered solar, or renewable power company remains on bankruptcy watch. The SunEdison 0.25% convertibles due 2020 traded at 4.375, which was up about 0.5 point from Monday.

Equities were lower, but oil prices were higher. The Dow Jones industrial average closed down 0.8% at 17,603.32; the Nasdaq stock market closed down 1% at 4,843.93; and the S&P 500 stock index closed down 1% at 2,045.17.

In economic data, the ISM non-manufacturing PMI came in for March at 54.5, which was up from February’s 53.4 level.

Teslas firmer

Tesla’s 0.25% convertibles due 2019, or the A tranche, traded better at 95.25 bid, 95.75 offered at the end of the session, which was up 1.3 points on the day, according to Trace data.

The Tesla Bs were better around 90, and the Tesla 1.25% convertibles due 2021 were at 91.8, or higher by 1.4 points.

Tesla’s 1.5% convertibles due 2018 were not trading as well. “That bond is under parity and the stock borrow is difficult,” a trader said.

Tesla shares closed up $8.48, or 3.4%, at $255.47.

The Teslas have been pretty firm on the stock move and the improved fundamentals for the company, the trader said.

Mentioned in this article:

Anacor Pharmaceuticals Inc. Nasdaq: ANAC

EZCorp Inc. Nasdaq: EZPW

Iconix Brand Group Inc. Nasdaq: ICON

Gilead Sciences Inc. Nasdaq: GILD

LinkedIn Corp. Nasdaq: LNKD

Red Hat Inc. NYSE: RHT

SunEdison Inc. Nasdaq: SUNE

Tesla Motors Inc. Nasdaq: TSLA

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