Tesla, Twitter convertibles improve post-earnings; AMD down with stock; markets firm

By Abigail W. Adams

Portland, Me., Oct. 25 – After a steep decline in equity markets a day earlier, indexes were seeing green on Thursday with earnings surprises from Tesla Inc. and Twitter Inc. pulling markets higher.

The companies’ convertible notes were active in the secondary space and improving on an outright and dollar-neutral basis as their equities soared.

With investor confidence in Tesla buoyed by a strong quarter, SolarCity Corp.’s 2.75% convertible notes due Nov. 1 2018 were also improved with little doubt investors will see a return on their investment.

Advanced Micro Devices Inc.’s 2.125% convertible notes due 2026 dropped from a triple par convertible note to a double par convertible note as stock tanked in the wake of its third-quarter earnings report.

Markets firmed and the tone improved on Thursday after a dramatic sell-off over the past two trading sessions.

The Dow Jones industrial average closed the day up 401.13 points, and the Nasdaq closed up 209.94 points.

Tesla in focus

Tesla was the name of the day on Thursday after the struggling electric car manufacturer released earnings that crushed analyst expectations.

Tesla’s three tranches of convertible notes were making gains on an outright and dollar-neutral basis as stock soared in response to a profit-making quarter.

Tesla’s B and C tranche convertible notes strengthened by 1 point on a dollar-neutral basis, while the soon-to-mature A tranche improved about 0.25 point dollar-neutral, a market source said.

The 0.25% convertible notes due March 1, 2019 were changing hands at 103.611 versus a stock price of $309.55 in the late afternoon.

With $11 million bonds on the tape, the 0.25% convertible notes were the least active of the three tranches.

With the maturity of the notes less than 6 months out, they move on a lower delta than the B and C tranches, a source said.

The total outstanding amount of the bonds is $920 million, according to Trace data.

While previously questioned by analysts, Tesla will have the cash on hand to cover the maturing notes, a source said.

The 1.25% notes due 2021 were seen trading at 106.5 versus an equity price of $310.94.

The 1.25% convertible notes were the most active of the tranches with $24 million on the tape by the late afternoon.

The B tranche is “in a sweet spot” in terms of its maturity and was the favored tranche, a market source said.

The 2.375% notes due 2022 were seen trading just shy of 115 versus an equity price of $307.20.

More than $16 million of the bonds were on the tape by late afternoon, sources said.

Tesla stock continued to see large price swings during Thursday’s session and traded as high as $321.00 and as low as $301.00 on Thursday before closing the day at $314.94, an increase of 9.16%.

Tesla squashed analyst expectations 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 and an adjusted profit of $516 million.

Buoyed by the strong quarter, SolarCity bonds were also improved on Thursday.

The 2.75% convertible notes due on Nov. 1 were at 99.80 bid on Thursday after trading as low as 99 last week, a market source said.

“People are feeling confident on those,” the source said. There are $230 million of the bonds outstanding, according to Trace data.

Twitter improves

Twitter’s 0.25% convertible notes due 2024 were also active and making gains on an outright and dollar-neutral basis after positive third-quarter earnings.

The 0.25% notes jumped more than 4 points outright to trade just south of 92 early in the session.

They were seen changing hands at 90.375 versus an equity price of $31.59 later in the afternoon with more than $15 million bonds on the tape, according to a market source.

The notes were improved about 0.5 point on a dollar-neutral basis. They move on a 50% delta, a source said.

Twitter stock closed Thursday at $31.80, an increase of 15.47%.

Twitter reported third-quarter earnings per share of 21 cents on revenue of $758 million versus analyst expectations for earnings per share of 14 cents on $702 million in revenue.

The 0.25% convertible notes due 2024 have traded below par since July when Twitter stock tanked in response to the social networking site clamping down on fake user accounts.

Stock was $40.10 when the 0.25% notes priced in June.

AMD at double par

AMD’s 2.125% convertible notes due 2026 dropped back down to double par on Thursday after trading at triple par for much of September and October.

The notes dropped more than 50 points outright. They traded just south of 251 versus an equity price of $18.81, according to a market source.

With more than $20 million of the bonds on the tape by the late afternoon, the 2.125% convertible notes were major volume movers in the space.

The notes have a high delta and are essentially an equity surrogate, sources said.

They were moving in lock step with equity, which tanked by more than 20% on Thursday on a revenue miss in its third-quarter earnings.

AMD stock traded as low as $17.72 but pared its losses to close Thursday at $19.265, a decrease of 15.47%.

AMD reported earnings per share of 13 cents for the third quarter, which beat analyst expectations for earnings per share of 12 cents.

However, AMD narrowly missed revenue forecasts of $1.7 billion with revenue of $1.65 billion. The chipmaker’s fourth-quarter revenue forecast of $1.45 billion also came in lower than analysts’ expectations.

Mentioned in this article:

Advanced Micro Devices Inc. Nasdaq: AMD

Tesla Inc. Nasdaq: TSLA

Twitter Inc. NYSE: TWTR

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