Tesla Motors in line to slightly lower; Solayzme jumps; Alcatel-Lucent up on Nokia talk

By Rebecca Melvin

New York, April 14 – U.S. convertibles traded quietly on Tuesday with little by way of catalysts to stimulate flow amid mixed to weaker equities. News of a large potential merger in the European market stimulated euro-denominated convertibles, however.

Tesla Motors Inc.’s convertibles were flat to slightly lower on a dollar-neutral basis, with the Tesla 1.25% convertible due 2021 seen crossing the Trace tape at 89, which was down about 0.5 point on an absolute basis.

Tesla was “in line to a tick weaker,” the trader said, adding that it was only about 0.125 point weaker. On an outright basis, the 1.25% bond was lower by 0.5 point.

Tesla shares ended down 1.1% after Morgan Stanley lowered its estimate on Tesla earnings. But the bank kept its “overweight” rating and $280 price target on shares.

Traders turned their attention to Intel Corp. ahead of the chip giant’s quarterly results announced after the market close. The report was in line with expectations, so one New York-based trader called it “a nonevent,” and didn’t expect much movement in the company’s two convertible bond issues.

Solazyme Inc.’s convertibles jumped a handful of points as shares surged after news that the San Francisco-based plant oils producer forged an agreement with Flotek Industries Inc. to commercialize and market an advanced oilfield drilling fluid additive.

Ciena Corp.’s 3.75% convertibles traded up in concert with the news of advanced talks of a potential linkup of two large networking company rivals, Nokia Corp. and Alcatel-Lucent SA.

The Ciena bond traded up to about 130, a New York-based trader said. That was up about 5 points as shares of the Hanover, Md.-based telecom equipment maker jumped 7% to $21.38.

Juniper Networks Inc. was another name in the space that was up in sympathy with a potential Alcatel-Nokia deal, although Sunnyvale, Calif.-based Juniper does not have a convertible, the trader said.

Talk of a Nokia takeout of Alcatel pushed the Alcatel convertibles sharply higher on both an outright and dollar-neutral basis.

“That was really the focus; it was such a huge story and a huge move,” a New York-based trader said. It really boosted the euro convert space, he said. Otherwise, the U.S. market was “moribund.”

Back in the United States, a trader said convertibles were “just kind of sitting there” at the same levels and not really trading.

Tesla in line to slightly lower

Tesla’s 1.25% convertible due 2021 crossed the Trace tape at 89, which was flat to slightly lower on a dollar-neutral basis.

The bond was “in line to a tick weaker,” a trader said, adding that it wouldn’t be more than 0.125 point weaker. On an outright basis, the bond was lower by 0.5 point.

Tesla shares ended down 1% after Morgan Stanley lowered its estimate on Tesla earnings. But the bank kept its “overweight” rating and $280 price target on shares.

Morgan Stanley analyst Adam Jonas said he estimates Tesla’s first-quarter adjusted loss will be wider than consensus estimates at 77 cents per share excluding items for the quarter, compared to the consensus estimates for a loss of 48 cents. Morgan Stanley’s Jonas also pulled the full-year and 2016 estimate lower.

Intel slips ahead of earnings

Intel shares slipped 24 cents, or 0.8%, to $31.49 in regular session trade Tuesday, but after earnings were released the shares gained about 3% in after-hours action.

Intel’s 3.25% convertibles due 2039 traded down to 158 to 159 during the day from 160. But a late print went up at 161.9, according to Trace.

Intel’s 2.95% convertibles due 2035 traded during the session in and around 125, which was slightly lower from a late Monday print at 125.75. But Late Tuesday the bonds traded at 127.

The Santa Clara, Calif.-based company, which cut its first-quarter revenue outlook in early March, citing lower-than-expected demand and lower PC supply chain inventory levels, reported per-share earnings, revenue and margin that were all in line, a trader said.

“Right now, the options are implying a 3.3% move, and that is right in line,” the trader said.

Solazyme pops

Solazyme’s 5% convertibles due 2019 traded last at 55 following initial trades that were around 50 on Tuesday. That level was up from 46 bid, 48 offered previously, a Connecticut-based trader said.

The bond “traded in bits and pieces all over the place,” the trader said.

Solazyme shares surged to as high as $4.13 but settled higher by 74 cents, or 23%, at $3.95.

Whether the bonds settle in around the mid 50 context will depend on how the stock does, the trader said.

Solazyme’s stock and bonds surged on news that it is working with Flotek to commercialize and market an advanced oilfield additive.

Flotek is focused on oilfield chemistry and is expanding sales of its additive Encapso in the Middle East.

“We are excited to add Flotek as a strategic partner as we continue to focus on broadening the market and customer base for Encapso,” Solazyme chief executive Jonathan Wolfsen said in a release.

Of the strategic agreement, the convertibles trader said, “We don’t think it’s a game changer.”

Solazyme priced $150 million of the 5% convertibles a year ago. Pricing collapsed in November after the developer of renewable oils from algae reported a third-quarter earnings miss and warned on revenue going forward due to production issues at its Moema, Brazil, plant.

Banner day for Alcatel paper

Paris-based Alcatel shares moved up 13% on Tuesday after word of a potential combination of the full businesses of Nokia and Alcatel, creating a telecommunications-equipment giant.

The Alcatel 4.25% euro-denominated convertible due 2018 was seen up 28 points, while the Alcatel 0% convertible bonds due 2019 and 0.125% convertibles due 2020 were seen up 12 points, a New York-based trader said.

On a hedged basis, the Alcatel 4.25% convertibles were seen to have expanded 18 points.

Trading action in this name “consumed most of the day, mostly on global desks,” a trader said.

“It was a big win for guys that were long the name,” a trader said. “There are only a few of these events in a year, so I’m sure it helped out the euro convert market a lot.”

Current bond valuations do not reflect 100% probability of a takeover, and hedge funds are buying more bonds as the deal has been perceived as good by the French government, the trader said via e-mail.

It wasn’t clear how the news affected the Nokia 5% convertible senior bond due 2017 against a 4% drop in Nokia shares. The Nokia convertibles were seen last at 307.60 versus a $7.96 share price.

Mentioned in this article:

Alcatel-Lucent NYSE: ALU

Ciena Corp. Nasdaq: CIEN

Intel Corp. Nasdaq: INTC

Nokia Corp. NYSE: NOK

Solazyme Inc. Nasdaq: SZYM

Tesla Motors Inc. Nasdaq: TSLA

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