Primary calendar building; Tesla Motors' notes gain on unexpected profit; Tower slides

By Stephanie N. Rotondo

Phoenix, Aug. 8 - New issues were trickling into the convertible bond market on Thursday.

"It looks like more deals are coming," a trader said, adding that most were from "typical convertible issuers," i.e. smaller-cap companies whose stock has recently hit 52-week highs.

Late Wednesday, Portfolio Recovery Associates Inc. priced a previously announced Rule 144A offering of convertible senior notes due 2018.

The company sold $250 million of the notes at par to yield 3%. The initial conversion rate is 15.2172 common shares per each $1,000 of notes. That equals a conversion price of $65.72 per share, which was a 30% premium over the Aug. 7 closing share price of $50.55.

At midday, a trader saw the issue trading at 106. Another trader said the issue was at 105 bid, 105.75 offered "before the market even opened."

"The stock did well today too, so that's a positive," the trader said.

The stock closed up $1.63, or 3.22% at $52.18.

Come Thursday, ServiceSource International Inc. said it had sold $130 million of 1.5% convertible senior notes due 2018, also via a Rule 144A offering.

The deal was upsized from $120 million.

The new issue was pegged in a 102 to 103 context at one shop. At another shop, a trader said the issue was trading around 103.

The equity ended the day at $11.93, off 8 cents.

The initial conversion rate is 61.677 common shares per each $1,000 of notes, equaling a conversion price of $16.21 per share.

The conversion price is an approximately 35% premium over the Aug. 7 closing share price of $12.01.

Also on Thursday, Web.com Group Inc. announced plans to sell $225 million of senior convertible notes due 2018.

Wells Fargo Securities LLC and Deutsche Bank Securities Inc. are the joint bookrunners.

Proceeds will be used to pay down debt.

In the secondary space, Tesla Motors Inc. was actively trading higher following the company's earnings announcement. Tower Group International Ltd. was meantime slipping as the company postponed the release of its quarterly results.

Tesla rises on results

A trader said Tesla's 1.5% convertible senior notes due 2018 were trading at an 80% delta after the company reported a profit.

Analysts had been expecting a loss of at least 19 cents per share.

The trader said the notes were trading at 145.5 versus a share price of $158.00 at midday.

The stock closed at $153.48, up $19.25, or 14.34%.

For the second quarter, the electric car maker reported a profit of $26.3 million, or 20 cents per share. Revenues also beat expectations at $401.5 million.

Analysts had forecast revenues of $383.4 million, with 5,000 new cars being sold.

Tesla beat that as well, selling 5,150 cars during the quarter.

Tower stalls

Tower Group International postponed its earnings release on Thursday, and the market did not take it well, according to a trader.

"I think people are starting to question the credit," the trader said. "The bonds took quite a hit."

He saw the 5% convertible notes due 2014 at par 7/8 bid, 101 offered versus a share price of $17.07 in midafternoon trading.

The common shares finished the day down $5.20, or 24.06%, at $16.41.

The Hamilton, Bermuda-based insurance company said it needed more time to "review matters relating to the estimate of its loss reserves and, primarily due to the integration of the Canopius Bermuda merger, its allocation of goodwill and certain tax accounts."

The company said it was working with outside advisers on the review.

The company followed up that announcement with guidance for its second-quarter results.

Based on "currently available information," Tower said it was expecting to report "adverse development" of $60 million to $110 million pre-tax. The company said at least 60% of that was attributable to losses at U.S.-taxed businesses. However, it said it would see any tax benefit related to that in the second quarter.

The company has forecast operating earnings of 15 cents to 20 cents per share.

Alpha paper rises

Alpha Natural Resources Inc. was on the rebound Thursday, though on no fresh news.

A trader saw the 2.375% convertible notes due 2015 hitting highs around 92.5, compared to trades in a 90 to 90.75 context the day before.

The stock was up 35 cents, or 7.11%, at $5.27.

Alpha Natural is a Bristol, Va.-based coal producer.

Mentioned in this article:

Alpha Natural Resources Inc. NYSE: ANR

Portfolio Recovery Associates Inc. Nasdaq: PRAA

ServiceSource International Inc. Nasdaq: SREV

Tesla Motors Inc. Nasdaq: TSLA

Tower Group International Ltd. Nasdaq: TWGP

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