Tesla slips below par on debut, weaker dollar neutral; existing Tesla down; Chiquita flat

By Rebecca Melvin

New York, Feb. 28 - Tesla Motors Inc.'s newly priced 0.25% convertibles and 1.25% convertibles slipped below par Friday on their debut in the secondary market after the Palo Alto, Calif.-based electric car maker priced an upsized $2 billion of the five-year and seven-year notes at the rich end of talk late Thursday, market players said.

Initially the new Tesla bonds were in line, or flat, on a dollar-neutral, basis, but later in the session they diverged from the flat line, trending weaker, especially the longer-dated issue of which there is more.

But when the underlying shares sold off into the market close, the bonds looked to have held in better.

The longer-dated seven-year notes were upsized to $1.2 billion from $800 million, and they were seen in late-day action at 98 bid, 98.5 offered with the underlying shares at $247.30.

The 0.25% five-year notes for $800 million - these were not upsized - were seen at 98.5 bid, 99 offered with the shares at $247.30.

The older Tesla 1.5% convertibles slipped to as low as 203 from 208.5 approximately. They were mostly holding in after coming in on a hedged basis earlier in the week.

Back in established issues, Chiquita Brands International Inc.'s convertibles were quiet despite a slide in the underlying shares of the Charlotte, N.C.-based banana and fresh produce distributor.

Equities were volatile this past week, and Friday was no exception, amid mixed economic data readings and ongoing expectations that the Federal Reserve's accommodative policies will be there to support the financial markets if the economy goes awry.

"It seems like people are ignoring any kind of news, and as long as QE is there, it's OK," a New York-based trader said.

The S&P 500 stock index ended up by 5.61 points, or 0.3%, to 1,859.45, which was another record close; the Dow Jones industrial average added 49.06, or 0.3%, to 16,321.71; but the Nasdaq Stock Market sank into the red late in the session, closing down 10.81 points, or 0.3%, at 4,308.12.

New Teslas flat

Tesla's newly priced 0.25% convertibles due 2019 were seen trading late in the session at 98.5 bid, 99 offered with the shares at $247.30. Early in the day they printed at 99.56, according to Trace, when shares were down around $6.00, or 2.4%, at $246.60. They also traded as low as 97.75 and as high as 100.

Tesla's newly priced 1.25% convertibles due 2021 were seen late in the session at 98 bid, 98.5 offered with the underlying shares at $247.30. They also printed lower at 97.35, when shares were at their lows.

"They are definitely below par," a New York-based trader said Friday morning.

"The stock is down; it was a big deal, and people are pretty much satiated. So they are just following the stock around dollar neutral," the trader said by way of explanation as to why the new issue was failing to hold up well.

The weakness came on the heels of a strong debut for UTi Worldwide Inc.'s new 4.5% convertibles on Thursday. That deal traded up to around 104 bid, 104.5 offered by the market close Thursday after the Virgin Islands-based ocean freight and logistics company priced $350 million of the five-year convertibles at the tight end of talk.

But a trader said that comparing the two deals was not realistic. "You can't compare the two. UTi has a big coupon and was a much smaller deal," the trader said.

Tesla's weakness was chalked up to oversupply and, of course, the weaker stock, which ended Friday at $244.81, or down 3.1%.

"Demand is based on people putting in orders, and they don't always end up happy," a trader said, suggesting that there was a lot of selling in the aftermarket.

The two new tranches for $2 billion comes less than a year after Tesla priced its older 1.5% convertibles due 2018 in May. That deal was for $660 million of paper.

The older Tesla 1.5% convertibles traded actively around 207, which was down from 208.5 on Thursday, But then the convertibles slipped further in late dealings, changing hands as low as 203.75.

The pullback was small compared to recent stellar gains that have been notched by the older convertibles in tandem with a rally in the underlying shares of the electric car maker.

Late Thursday, Tesla priced an upsized $2 billion of convertible senior notes at par in two tranches of five-year and seven-year paper, with pricing accomplished at the rich end of talk, according to a syndicate source.

There is a greenshoe for up to $300 million, or $120 million for the shorter-dated tranche and $180 million for the longer-dated paper. Initially, the base deals were expected to be $1.6 billion in size, or $800 million for each tranche, with greenshoes of $120 million each.

The new five-year tranche for $800 million has a 0.25% coupon, which was fixed during marketing from an initially talked 0.25% to 0.75% coupon.

The seven-year tranche for $1.2 billion has a 1.25% coupon, which was fixed during marketing from talk of a 1.25% to 1.75% coupon.

Both tranches have a 42.5% initial conversion premium, which was the rich end of 37.5% to 42.5% talk.

Goldman Sachs & Co., Morgan Stanley & Co. LLC, J.P. Morgan Securities LLC and Deutsche Bank Securities Inc. were the joint bookrunners of the registered deal.

Holders may convert their notes if shares rise to at least 130% of the conversion price. The notes are non-callable with no puts except a fundamental change-of-control put.

In connection with the pricing of the notes, Tesla established a bond hedge by entering into privately negotiated convertible note hedge transactions with one or more of the underwriters, as well as warrant transactions.

The strike on the capped call transactions is $512.6562 for the 2019 notes and $560.6388 for the 2021 notes, which raises the initial conversion premium from the issuer's perspective to 85% for the shorter notes and 98% for the longer notes.

Proceeds will be used to accelerate growth of its business in the United States and internationally, for development and production of a mass market vehicle, the development of the Tesla Gigafactory and other general corporate purposes, and also to pay the net cost of the convertible note hedge transactions.

Pending those uses, the company plans to invest proceeds in highly liquid cash equivalents or U.S. government securities.

Chiquita remains quiet

Chiquita's 4.25% convertibles due 2016 remained quiet on Friday at 98.125 bid, 98.625 offered, a New York-based trader said.

Chiquita shares dropped 85 cents, or 7.2%, to $10.94 on Friday.

Chiquita reported a much narrower net loss for its fourth-quarter, but excluding one-time earnings the $14 million loss was the same as the $14 million loss in the year-earlier period. Revenue was down 1.4% at $748 million for the quarter.

Looking ahead, the company said that it is committed to return to its core strategy and on operating a branded commodity produce business. It said that it believes "the actions it is taking position the company to remain on glidepath to the long term EBIT margin targets - to achieve run-rate target EBIT margins of 4% for bananas and 7-8% for salads by the end of 2015."

Mentioned in this article:

Chiquita Brands International Inc. NYSE: CQB

Tesla Motors Inc. Nasdaq: TSLA

UTi Worldwide Inc. Nasdaq: UTIW

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