Alcatel-Lucent adds outright; Clearwire quiet after higher bid; Prospect Capital on tap

By Rebecca Melvin

New York, Dec. 17 - The convertibles of Alcatel-Lucent SA were higher in active trade on Monday after positive ratings moves on shares followed on the heels of news that the French telecom equipment maker secured $2.1 billion in needed funding.

Natixis upgraded Alcatel-Lucent to "buy" from "neutral," and Evercore Partners initiated coverage on Alcatel-Lucent with an "overweight" rating.

Clearwire Corp.'s convertibles were quiet after word that Sprint Nextel Corp. boosted by about 5% its offer to buy the other half of Clearwire that it doesn't already own. The new offer is for $2.97 per share, or $2.2 billion, up from $2.90 per share. Clearwire shares slumped nearly 14%.

Both Intel Corp. convertibles were also active, following shares first lower and then flattish.

"Guys are picking their spots," a New York-based trader said, adding that the shorter-dated, stronger credits are "ridiculously strong," and the in-the-money names are fairly quiet.

Otherwise trading action was quiet as convertibles players mostly mark time in the secondary market until year-end.

In the primary market, Prospect Capital Corp. launched a $200 million offering of six-year convertibles, with proceeds intended to maintain balance sheet liquidity. The New York-based venture capital and private equity firm last raised funds in the convertibles market in August. No further details were known by Prospect News' deadline.

Eyeing returns

Hedged returns were seen coming in for 2012 at 6% to 7%, according to market sources, and Barclays said outright U.S. convertibles gained 13.4% for 2012 and were seen returning 6.5% for 2013 as a base case.

That base case assumes U.S. GDP growth of 2.1% in 2013; moderate growth; unchanged rates; 4% to 6% return for high yield debt, 4.25% return for investment-grade debt, 8% to 10% return for equity; and a year-end target for the S&P 500 stock index of 1525.

If equities return more than 10%, then convertibles will be higher, Barclays said in a report on the outlook for convertibles in 2013 called, "Ready to Bat."

"Return is expected to be generated by coupon income, equity driven appreciation, the primary market and minimal spread driven valuation improvement. Given tight spreads, no contribution from improved credit is expected," Barclays said.

Alcatel Lucent adds outright

Alcatel-Lucent's 2.875% convertibles due 2023 traded actively Monday up to nearly 92 from near 90.

Trace reported a trade at 91.875, which was up 0.875 from Friday.

The Alcatel-Lucent convertible preferreds jumped to near 80 from 60 before the funding news late Thursday, a New York-based trader said.

Alcatel-Lucent shares gained 8 cents, or 6.5%, to $1.32 in active trade, on top of a 10% gain on Friday.

The convertibles trade outright "at the moment," a trader said.

"The preferreds really bumped up and the ALUFP series A not that much," the trader said.

Driving gains was news that Alcatel-Lucent has secured a $2.1 billion financing package from Goldman Sachs & Co. and Credit Suisse.

The telecom-equipment company is trying to pay down and refinance debt.

Funds will be used to push out its debt maturity profile and to provide additional flexibility to finalize its previously announced restructuring program, including cost-cutting moves.

Alcatel-Lucent's U.S. subsidiary is the borrower for the financing, which will have maturities of three and a half to six years. The deal is expected to be secured by the company's portfolio of intellectual property.

Prospect Capital to price

Prospect Capital planned to offer $200 million of six-year convertible notes in a private placement with institutional investors under Rule 144A, according to a news release.

There is a $30 million greenshoe.

Prospect Capital last raised funds in the convertible bond market in August, when it priced $200 million of 5.75% 5.5-year convertibles in an overnight deal that was reoffered at 98.

Proceeds are intended to be used to maintain balance sheet liquidity, including investments in high-quality short-term debt instruments, and thereafter to make long-term investments in accordance with Prospect Capital's investment objectives.

Mentioned in this article:

Alcatel-Lucent SA NYSE and Paris: ALU

Clearwire Corp. Nasdaq: CLWR

Prospect Capital Corp. Nasdaq: PSEC

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