Convertibles start week on a quiet note; Tesla convertibles muted despite stock drop

By Rebecca Melvin

New York, July 23 – Convertibles were mostly quiet on Monday with the summer slowdown in effect, a New York-based market source said.

There were no new issuance announcements and the secondary market was a little heavy as market players have been generally sellers of extant paper with an eye toward making room for new issues that are seen on the horizon.

Even the convertibles of Tesla Inc., which has been a stalwart in the convertibles space with three convertible issues in the market, was not in trade.

The shares of the company were under pressure after news reports that the Palo Alto, Calif.-based electric car maker has asked at least one supplier to return a significant portion of its payments since 2016 to help Tesla’s current financial position.

Tesla shares recovered some ground during the regular session to close down $10.38, or 3.3%, to $303.20. Earlier it had been down as much as nearly 6%. But after hours the stock again dropped and was off 8%.

Tesla’s convertible A tranche was seen to have traded, and it held up better than expected given the move in the company’s common shares.

The Tesla A tranche was seen at 103.25 with the stock down as much as 6% in the early going.

That bond price looked to be on the offer side, and that was better than one New York-based market source expected.

Meanwhile the Tesla 2.375% convertible C tranche due 2022 appeared to have been untraded. They were last at 115.68 in trade on Friday, according to Trace data.

Tesla said that the returned payments were essential to its continued operations and couched the plan in terms of it being an investment on behalf of both parties.

Tesla declined to comment on the plan but has said that it is standard in terms of procurement negotiations.

Tesla’s cash burn has remained high as it ramped up production of its first mainstream market car, the Model 3.

The company’s $230 million of 2018 convertibles are due in November, and a second $920 million issue is due in March 2019.

Elsewhere, Lumentum Holdings Inc.’s existing 0.25% convertibles due 2024 were up about 0.25 point to 116 on Monday.

The Milpitas, Calif.-based maker of optical and photonic products has proposed pricing a $500 million senior secured term loan. The existing $450 million of convertible notes priced in 2017.

On Monday, S&P’s said it assigned a BB- issuer credit rating on Lumentum, with a BB- issue level rating on the proposed term loan and a B+ issue-level rating on the company’s existing convertible.

Mentioned in this article:

Lumentum Holdings Inc. Nasdaq: LITE

Tesla Inc. Nasdaq: TSLA

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