Applied Optoelectronics convertibles up on debut; Nutanix drops; Tesla due date arrives

By Abigail W. Adams

Portland, Me., March 1 – The convertibles primary market closed out its highest volume week for new deal activity in 2019 with one additional small deal pricing.

Applied Optoelectronics, Inc. priced $70 million of five-year convertible notes after the market close on Thursday. While volume was light, the new paper was trading up on debut.

In all, issuers have sold a combined $1.945 billion of convertibles over four deals during the week.

Nutanix Inc.’s 0% convertible notes due 2023 tanked on an outright basis on Friday alongside stock after releasing its second-quarter earnings report.

However, the notes were moving in line to expanded dollar-neutral, sources said.

Aceto Corp.’s 2% convertible notes due 2020 were once more active in the secondary space with the notes again seeing a large decline.

While Tesla Inc. was again the talk of the street after an onslaught of news sent shares tumbling, its convertible notes were slow to trade.

However, the electric car manufacturer made good on its 0.25% convertible notes, which matured on Friday, and paid off the outstanding $920 million of the notes in cash.

Applied Optoelectronics up

Applied Optoelectronics priced $70 million of five-year convertible notes at par with a coupon of 5% and an initial conversion premium of 30%.

Pricing came at the midpoint of talk for a coupon of 4.75% to 5.25% and at the rich end of talk for an initial conversion premium of 25% to 30%.

The greenshoe on the deal was upsized to $10.5 million from $7 million.

The deal from the small cap tech company was oversubscribed during the subscription process, a market source said.

The deal was wall-crossed. While stock took a hit during bookbuilding, dropping more than 17%, the deal came with attractive terms.

Sources pegged the deal several points cheap.

The new paper was trading up on debut. It was seen at 102.25 bid, 104.25 offered shortly before the opening bell, according to a market source.

The notes were quoted at 103.5 bid, 104.5 offered versus a stock price of $13.50 about one hour into Friday’s session.

They were expanded about 1 point dollar-neutral, a market source said. About $17 million of the bonds had changed hands during Friday’s session.

The performance of the stock post-pricing will be telling, a market source said.

Stock was largely unchanged on Friday but dipped toward the end of the session to close the day at $13.235, a decrease of 1.96%.

Nutanix in focus

Nutanix’s 0% convertible notes due 2023 saw high-volume activity on Friday with the notes dropping outright alongside stock following the software company’s second-quarter earnings report.

However, the notes were moving in line to expanded dollar-neutral based on the delta used, sources said.

The 0% notes dropped 20.5 points outright to close the day at 101.8, according to a market source.

One source saw the notes moving in line dollar-neutral.

Another saw them expanded about 3 points dollar-neutral.

The notes were moving on a 75% delta heading into Friday’s session but switched to a 60% delta, the source said.

Nutanix stock tanked on Friday, setting a new 52-week low.

Stock closed Friday at $33.70, a decrease of 32.72%.

Stock tanked despite a second-quarter earnings beat.

Nutanix reported losses per share of 23 cents versus analyst expectations for losses per share of 25 cents.

Revenue was $335.36 million versus analyst expectations for revenue of $331.22 million.

However, weak guidance for the third-quarter triggered the sell-off.

Nutanix anticipates losses per share of 60 cents in the third-quarter, which far exceeded analyst expectations for losses of 28 cents.

Revenue is expected to be $290 million to $300 million versus analyst expectations for revenue of $347.68 million.

The weak guidance was due to inadequate marketing spending and slow hiring in sales, the company said in a press release.

Aceto down again

Aceto’s 2% convertible notes due 2020 were once again tanking in active trading on Friday. The notes traded as low as 45.5, a market source said.

They were trading around 67 after filing for Chapter 11 bankruptcy protection in late February.

More than $30 million of the bonds changed hands during Friday’s session.

The sudden drop in the notes from a company that was already in bankruptcy was noted as strange by several sources.

The human health products and performance chemicals company filed for bankruptcy on Feb. 20 and negotiated the sale of one of its divisions to New Mountain Capital, which included the assumption of its liabilities.

Tesla matures

Tesla once again dominated headlines on Friday with an onslaught of news from the company sparking a sell-off in the stock.

However, the largest debt payment in the electric car manufacturer’s history was made with little fanfare.

With stock falling far short of the conversion price of its 0.25% convertible notes, Tesla paid off the $920 million outstanding of the notes in cash, sources said.

Despite the drop in Tesla stock, the company’s 1.25% convertible notes due 2021 and 2.375% convertible notes due 2022 saw little movement.

The 1.25% convertible notes were moving down with stock, a source said. The notes dipped about 4 points outright to 105.625.

The 2.375% convertible notes were slightly weaker, a source said. They fell about 6 points outright to 113.625.

With the gamma on the stock enormous, the notes are expected to improve, a market source said.

Tesla stock closed Friday at $294.88, a decrease of 7.81%.

While stock was on the rise in the run-up to CEO Elon Musk’s much hyped announcement on Thursday, it sold off afterwards.

Tesla rolled out its $35,000 Model 3 sedan after the market close on Thursday.

Musk also announced that it was closing its stores and switching to online sales to enable the price reduction.

Musk also warned that Tesla would most likely not post a profit in the first quarter.

Mentioned in this article:

Aceto Corp. Nasdaq: ACET

Applied Optoelectronics, Inc. Nasdaq: AAOI

Nutanix Inc. Nasdaq: NTNX

Tesla Inc. Nasdaq: TSLA

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