Aurora convertibles hit the market, expand on debut; Atlassian contracts; Tesla at par

By Abigail W. Adams

Portland, Me., Jan. 18 – The first convertible bond deal of 2019 hit the secondary space on Friday.

Aurora Cannabis Inc. priced an upsized $300 million offering of five-year convertible notes prior to the market open.

The new paper dominated activity in the secondary space and saw a large expansion on its market debut.

Outside of the new paper, Atlassian Inc.’s 0.625% convertible notes due 2023 were active following the software company’s second-quarter earnings report although the notes were contracting in the high-volume activity.

Tesla Inc.’s 0.25% convertible bonds due March 1, 2019 also saw a fresh round of trading activity with the notes dropping to par as stock tanked following news the electric car manufacturer was slashing its workforce.

While stock is now well below the conversion price on the soon-to-mature notes, the premium is low and it is still too early to tell if the notes will or will not be convertible upon maturity, a market source said.

Aurora dominates

Aurora Cannabis priced an upsized $300 million of five-year convertible notes prior to the market open on Friday at the cheap end of talk at par with a coupon of 5.5% and an initial conversion premium of 10%.

Price talk had been for a coupon of 5% to 5.5% and an initial conversion premium of 10% to 15%, according to a market source.

The greenshoe was also upsized to $45 million. The initial size of the deal had been $250 million with a greenshoe of $37.5 million.

The new paper dominated activity in the secondary space and was expanding on debut. The 5.5% convertible notes traded as high as 103 early in the session, a market source said.

They were seen changing hands at 102.5 with stock up just under 2%. The notes came in on an outright basis as stock faltered into the afternoon. The notes traded down to 101.75.

The notes were expanded 3 points dollar-neutral, a market source said.

The trading activity was a mix of outright and hedge players, a market source said.

The deal came “stupid cheap,” a market source said, with the notes’ performance attributed to their pricing.

While the borrow on the stock was decent on Friday at 10%, sources questioned if that rate would hold. The borrow on the stock was notoriously difficult, sources said.

If the rate of the borrow were to change so too could the future trajectory of the notes, a market source said.

Atlassian contracts

Atlassian’s 0.625% convertible notes due 2023 were active although the notes were contracting after the software company reported second-quarter earnings.

After trading as high as 137.5 soon after the opening bell, the 0.625% convertible notes came in alongside stock into the afternoon.

The notes traded down to 129.625 in the mid-afternoon.

They were contracted about 0.5 point dollar-neutral, a market source said. More than $36 million of the bonds were on the tape by the late afternoon.

The majority of the trades were on swap, a market source said.

Atlassian stock jumped as high as $100.00 soon after the opening bell but came in to close the day at $90.67, a decrease of 2.42%.

Stock traded down despite an earnings beat on both the top and bottom lines.

Atlassian reported earnings per share of 25 cents for the second-quarter, which beat analyst expectations of earnings per share of 21 cents.

The company reported revenue of $299 million versus analyst expectations for revenue of $288.3 million.

Tesla back to par

Tesla’s 0.25% convertible notes due March 1, 2019 saw a fresh round of trading activity on Friday as stock tanked after the company announced it was slashing its workforce.

The 0.25% notes dropped about 3 points outright to trade just north of par, a market source said.

While less active, Tesla’s 1.25% convertible notes due 2021 and 2.375% convertible notes due 2022 were also down on an outright basis as stock fell.

The 1.25% convertible notes dropped 8 points outright to 107.5. The 2.375% convertible notes dropped 10 points outright to 115.

Tesla stock closed Friday at $302.65, a decrease of 12.85%. Stock tanked after the electric car manufacturer announced it was slashing its full-time workforce by 7%.

While Tesla stock is now well below the $359.87 conversion price on the 0.25% notes, the premium is still low on the notes, a market source said. “You never know,” the source said.

Stock could rebound just as quickly as it dropped given the volatility of the name.

Tesla has said it will settle the $920 million amount outstanding of the 0.25% notes half in cash and half in shares, if they are convertible upon maturity.

Mentioned in this article:

Atlassian Inc. Nasdaq: TEAM

Aurora Cannabis Inc. NYSE: ACB

Tesla Inc. Nasdaq: TSLA

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