Tesla convertibles improve on Tencent investment; Red Hat firms; Carbonite deal on tap

By Stephanie N. Rotondo

Seattle, March 28 – A convertible bond trader reported that the “Tesla Inc. family” was making up the bulk of the day’s trading on Tuesday.

The activity in Tesla – as well as its SolarCity Corp. subsidiary – came on the heels of news that Chinese technology investor Tencent Holdings Ltd. had picked up a 5% passive stake in the Palo Alto, Calif.-based car manufacturer.

Tesla’s convertibles added on the news, as did its equity.

Also on the rise were Red Hat Inc.’s 0.25% convertible notes due 2019, as investors reacted positively to the company’s earnings release.

The results – which came after the market closed on Monday – were in line to above analysts’ expectations.

Meanwhile, Square Inc.’s 0.375% convertible notes due 2022 were also seen moving up for the day.

A market source saw the issue straddling 103 at the end of the day. That compared to a 101 to 102 context on Monday.

Another trader pegged the paper at 102.5 bid, 103 offered.

The underlying equity, however, waned 2 cents to $17.23.

The moves came as the credit card payments company led by Twitter’s Jack Dorsey launched its services in the United Kingdom. The company also operates in the United States, Canada, Australia and Japan.

As for the primary space, Carbonite Inc. added a new deal to the calendar on Tuesday.

The Boston-based technology company is offering $125 million of convertible senior notes due 2022. Price talk on the issue is for a 2.25% to 2.75% yield and an initial conversion premium of 30% to 35%.

Barclays is the bookrunner on the Rule 144A deal.

The paper is provisionally callable after three years, assuming the stock hits a 130% price hurdle.

Ahead of pricing – expected after Wednesday’s close – the company’s stock was off a dime at $19.70.

Proceeds will be used to pay down debt, for privately negotiated stock repurchases and for general corporate purposes.

Tesla drives up

Tesla investors reacted well to news that Tencent had snapped up a 5% stake in the company on Tuesday, pushing both the convertible bonds and the underlying equity upward.

A trader saw the 2.375% convertible notes due 2022 in a “roughly” 104 to 104.25 context.

The trader also noted that parity was up 1.5 points.

“These bonds are up like 3 points, so they are outperforming,” he said.

As for the 1.25% convertible notes due 2021, they were up about 2.5 points, he said.

The trader added that SolarCity’s 2.75% convertible notes due 2018 were unchanged, though some of the other SolarCity notes were trading better.

At another desk, a source pegged the 2.375% convertibles in a 103 to 104 range, a gain of 3 to 4 points. The source also saw the 1.25% convertibles trading with a 98 handle, compared to a 95.5 to 96 context on Monday.

Tesla’s stock was meantime up over 2% on the investment news, rising $7.23, or 2.68%, to $277.45.

Tencent reportedly paid $1.8 billion for its new holdings, both in the open market and via Tesla’s recent common stock offering. The buy makes the Chinese firm Tesla’s fifth largest shareholder.

Tencent, the owner of WeChat messaging service, has been buying up stakes in firms dealing with artificial intelligence, especially those working on self-driving car technologies. Its location could also help Tesla break into the Chinese market.

A tip of the (Red) Hat

After reporting results that came in line or better than expectations, Red Hat’s 0.25% convertibles were popping in Tuesday trading.

One source saw the paper trading in the neighborhood of 130, which compared to levels around 126 prior to the release of the earnings on Monday.

Another source called the issue up about 4 points, trading at 129.5.

The company’s stock also popped, gaining $4.28, or 5.21%, to $86.48.

For its fiscal first quarter, the software company was expected to report earnings per share of 39 cents on revenue of $618.5 million, according to Zacks.com. It actually posted adjusted EPS of 61 cents on revenue of $629 million.

For its part, revenue was up 16% year over year, due in part to subscription revenue growth of 11%.

For the current quarter, Red Hat offered guidance of 52 to 53 cents per share on revenue of $646.5 million. Analysts are estimating EPS of 59 cents on revenue of $642 million.

Mentioned in this article:

Carbonite Inc. Nasdaq: CARB

Red Hat Inc. NYSE: RHT

Square Inc. NYSE: SQ

Tesla Inc. Nasdaq: TSLA

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