Tesla convertibles in focus amid earnings; Illumina expands on stock move; Citrix active

By Abigail W. Adams

Portland, Me., Oct. 24 – While primary market activity has been slow in the midst of the earnings season blackout and the carnage in equity markets, the convertibles secondary space continued to see an uptick in trading volume.

More than $119 million of bonds were on the tape a little over one hour into Wednesday’s session.

While activity tempered into the afternoon as losses in equities mounted, there was $419 million on the tape by the late afternoon, sources said.

Focus was on companies’ earnings with no quarterly report more talked about or closely followed by the Street than Tesla Inc.

Tesla’s three tranches of convertible notes were improving on a dollar-neutral basis as stock saw a volatile session amid speculation about a third-quarter profit.

Illumina Inc.’s 0% convertible notes due 2023 and 0.5% convertible notes due 2021 were also improved dollar-neutral as stock sank in response to the company’s third-quarter earnings.

Citrix Systems Inc.’s 0.5% convertible notes due 2019 saw more than $11 million bonds change hands over three transactions.

The outstanding amount of the issue has been reduced by over $100 million over the past month.

All eyes on Tesla

All eyes were on Tesla in the run up to the electric car manufacturer’s third-quarter earnings report.

Tesla’s three tranches of convertible notes were improved by about 0.5 point dollar-neutral, a market source said.

While the B and C tranches were major volume movers, the A tranche was slow to trade, sources said.

Tesla’s 1.25% convertible notes due 2021 changed hands at 103 versus an equity price of $294.36. About $24.5 million of the bonds were on the tape by the late afternoon.

The 2.375% convertible notes due 2022 were trading just shy of 110 versus an equity price of $295.34. More than $16 million of the bonds were on the tape by the late afternoon.

The soon-to-mature 0.25% convertible notes due March 1, 2019 were not as active but were changing hands just shy of 102.5.

Tesla stock was volatile on Wednesday after a 12% jump on Tuesday brought on by Citron Research founder Andrew Left’s about face on the company’s prospects.

Tesla stock jumped as high as $304.00 and sank as low as $285.00 before closing Wednesday at $288.50, a decrease of 1.92%.

Left announced on Tuesday he was giving up his short position and going long in Tesla with a profit expected in the third quarter.

Tesla delivered in its third-quarter earnings, reporting non-GAAP earnings per share of $2.90 versus analyst expectations of a loss per share of 19 cents.

Tesla turned a profit of $516 million during the third-quarter.

Illumina improves

Illumina’s 0.5% convertible notes and 0% convertible notes were improved on a dollar-neutral basis as stock sunk after the company reported third-quarter earnings after the market close on Tuesday.

The 0.5% convertible notes were improved 0.5 point dollar-neutral, a market source said.

They were seen changing hands at 132.125 versus an equity price of $302.99 in the late afternoon. More than $21 million bonds had changed hands during Wednesday’s session.

The 0% convertible notes due 2023 were improved about 0.125 point dollar-neutral, a source said.

They were seen at 103.75 bid, 104.25 offered versus a stock price of $299.00. The 0% notes were less active with only about $5 million on the tape by late afternoon.

The 0% notes “have been a big winner of the year,” a market source said. The notes priced at par in August with an initial conversion premium of 40%.

They were trading on Wednesday at 103 with a conversion premium of 60%, the source said.

Demand from outright accounts for investment-grade paper was driving the valuation of the notes.

However, with the stock coming in from its highs, the notes were for sale, a market source said.

Illumina stock tanked on Wednesday, despite a large earnings beat and increased forward guidance.

Illumina stock closed Wednesday at $293.82, a decrease of 6.37%.

The company reported non-GAAP earnings per share of $1.52 for the third quarter versus analyst expectations of $1.25 per share.

Forward guidance was increased to earnings per share of $5.70 to $5.75 for the full fiscal year.

Citrix active

Citrix’s 0.5% convertible notes due 2019 continued to see high-volume trading as the outstanding amount of the bonds continues to see reductions.

The 0.5% notes were trading at parity on Wednesday. They were seen changing hands at 141.5 versus an equity price of $102.04.

While more than $11 million of the bonds were on the tape by the late afternoon, there were only three transactions, according to a market source.

Citrix stock was down in the run up to its third-quarter earnings report.

Citrix stock closed Wednesday at $100.20, a decrease of 2.13%. Citrix reported third-quarter earnings after the market close.

The 0.5% convertible notes have been active in the secondary space for the past two weeks with the outstanding amount of the issue dropping.

There are $1.3 billion bonds outstanding. The full issue amount of $1.437 billion was outstanding at the launch of the month, a market source said.

The activity was either the result of holders converting the notes or the company buying the notes back through a third party, a market source said.

Mentioned in this article:

Citrix Systems Inc. Nasdaq: CTXS

Illumina Inc. Nasdaq: ILMN

Tesla Inc. Nasdaq: TSLA

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