Morning Commentary: Convertibles market focuses on new Tesla deal; ON firms; Medicines falters

By Stephanie N. Rotondo

Seattle, March 17 – Tesla Inc.’s new $850 million of 2.375% convertible senior notes due 2022 was easily dominating early trading on Friday, according to a market source.

The source noted that of the nearly $281 million in convertibles traded as of mid-morning, the new Tesla issue made up over $155 million of the volume.

The source pegged the convertibles at 99.75 against a stock price of $263.29.

As for the company’s existing A and B convertibles – as well as its equity – they were on the rise.

The 1.25% B convertible notes due 2021 were seen ˝ point better at 96. The 0.25% A convertibles due 2019 were also up about ˝ point, trading near 98.5.

The underlying stock (Nasdaq: TSLA) was up $1.04 at $263.09 at mid-morning. The concurrent $347.4 million stock sale, upsized from $250 million, priced at $262.00 per share.

The deal came upsized from $750 million, with an initial conversion premium of 25%. The terms were at the cheap end of talk for a 1.875% to 2.375% yield and a conversion premium of 25% to 30%.

The activity in Tesla continued to overshadow ON Semiconductor Corp.’s new 1.625% convertible notes due 2023, a $500 million deal that priced Tuesday.

ON Semiconductor’s initial conversion premium was 35%.

In Friday trading, the ON convertibles were seen at 101.5, a gain of ˝ point. Still, liquidity in the issue was minimal.

Away from recent issues, Medicines Co.’s 2.5% convertible notes due 2022 and 2.75% convertible notes due 2023 were under pressure, losing ground along with an over 20% decline in the stock (Nasdaq: MDCO).

The bonds were seen off as much as 28 points in early trading.

The weakness in the equity was attributed to an announcement from Amgen on Friday regarding the efficacy of its cholesterol drug, Repatha. Amgen said the drug cut the risk of heart attack, stroke and cardiovascular death by 20%, though the market had expected a reduction of 24%.

Medicines is developing its own anti-cholesterol drug inclirisan, which uses a similar mechanism to the Amgen product.

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