Eagle Bulk convertibles skyrocket; Turner Brands eyed; Tesla contracts post-earnings

By Abigail W. Adams

Portland, Me., July 25 – Thursday was an active day for the convertibles primary and secondary market with one new deal pricing prior the market open and another set to price after the market close.

Eagle Bulk Shipping Inc.’s newly priced convertible notes skyrocketed in the secondary space with the notes making large gains on both an outright and dollar-neutral basis.

Turning Point Brands Inc.’s offering of $125 million of five-year convertible notes looked cheap based on underwriters’ assumptions and will add some welcome diversity to the convertibles universe, sources said.

The new paper and earnings surprises jumpstarted activity in the secondary space with more than $186 million in reported volume about one hour into the session and $342 million heading into the market close.

Tesla Inc.’s convertible notes were in focus and losing ground on both an outright and dollar-neutral basis as stock tanked after its second-quarter earnings report.

Eagle Bulk skyrockets

Eagle Bulk priced $100 million of five-year convertible notes prior to the market open on Thursday at par with a coupon of 5% and an initial conversion premium of 25%.

Pricing came wider than initial price talk for a coupon of 4.25% to 4.75% and at the cheap end of talk for an initial conversion premium of 25% to 30%, according to a market source.

The deal was wall-crossed, sources said.

Primary shareholders Oaktree Capital Management LP agreed to acquire $45.5 million of the notes and Golden Tree Asset Management LP agreed to acquire $23.6 million, according to a company news release.

Oaktree became part owner of the company during Eagle Bulk’s restructuring in 2014 and may have been looking for an opportunity to swap out its equity in the company for bonds, a market source said.

Concurrently with the convertible notes offering, up to 3,582,880 shares of the company’s common stock was offered by selling shareholders through a lending arrangement.

The new paper modeled up to 8 points cheap at the midpoint of initial price talk, sources said.

It skyrocketed in the secondary space.

The notes were bid at 104.5 pre-open and steadily climbed throughout the session.

The 5% notes were changing hands around 106.5 soon after the opening bell and traded up to 111.5 by the late afternoon.

“Eagle is soaring,” a market source said.

There was a good mix of outright and hedge trading activity for the notes. The notes expanded upwards of 6 points dollar-neutral, a source said.

Eagle Bulk stock closed Thursday at $4.73, an increase of 5.35%.

Turning Point eyed

Turning Point Brands plans to price $125 million of five-year convertible notes after the market close on Thursday with price talk for a coupon of 2% to 2.5% and an initial conversion premium of 27.5% to 32.5%, according to a market source.

The deal is being marketed with assumptions of 600 basis points over Libor and a 40% vol., which modeled almost 3 points cheap at the midpoint of talk, sources said.

However, some sources felt the credit spread was tight given the spread on the second-lien credit agreement the company was retiring with proceeds from the new offering.

The credit spread on the facility was in the 800s.

While small, the deal from the Louisville, Ky.-based provider of tobacco products and adult consumer alternatives should be a welcome addition to the convertibles universe.

With the convertibles universe so tech heavy, having more paper from consumer discretionary companies will add needed diversity to the space, a market source said.

Tesla’s earnings

Tesla’s convertible notes were in focus and losing ground on an outright and dollar-neutral basis as stock tanked after a disappointing earnings report.

Tesla’s 1.25% convertible notes due 2021 dropped 4 points outright to trade down to 96.

The 2.375% convertible notes dropped 5.5 points outright to 99.5.

The tranches contracted about 0.75 point dollar-neutral, a market source said.

Tesla’s newly priced 2% convertible notes due 2024 were the most active of the tranches. The notes fell almost 9 points outright to 98.5.

However, they held dollar-neutral and were only contracted by about 0.25 point.

SolarCity Corp.’s 1.625% convertible notes due Nov. 1, 2019 were also holding.

The convertible notes were changing hands at 98.375 with the yield to maturity about 8.5%, sources said.

Tesla stock traded to a low of $225.50 and a high of $234.50 before closing the day at $231.00, a decrease of 12.79%.

Stock tanked following a disappointing second-quarter earnings report.

Tesla reported a loss per share of $1.12 versus the loss of 40 cents expected by analysts.

Revenue was $6.35 billion versus the $6.41 billion expected.

Stock had been on the rise in recent weeks after sales and production figures for the second quarter beat analyst expectations.

However, with the majority of sales coming from the lower end Model 3, as opposed to the more luxury Model S and X cars, the sales did not translate into the revenue investors were hoping for.

Mentioned in this article:

Eagle Bulk Shipping Inc. Nasdaq: EGLE

Tesla Inc. Nasdaq: TSLA

Turning Point Brands Inc. NYSE: TPB

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