SunPower jumps on MidAmerican deal; Cobalt extends gains, adds on swap; JDS trades at par

By Rebecca Melvin

New York, Jan. 3 - The convertibles market was a little more active on the second trading day of the new year Thursday as market players focused on beginning to put money to work for 2013.

"People have to work for a living anew," a New York-based trader said referring to new positions taken with an eye toward maximizing returns for this year.

But market action was still sluggish and not expected to pick up significantly before next week when the full complement of market players is expected to be back from vacation.

SunPower Corp. was "obviously the story of the day," an East Coast-based buysider said, after news that the solar panel and systems maker inked a deal with MidAmerican Energy Holdings Co. under which MidAmerican is acquiring SunPower projects that will supply Southern California Edison under long-term power-purchase contracts.

SunPower's two convertible bond issues gained 2 to 3 points each amid a nearly 50% surge in the underlying shares.

Other solar names moved up in sympathy with the SunPower deal, but the moves were mostly relegated to the underlying shares. Suntech Power Holdings Co. Ltd.'s convertibles traded toward the end of the session at 55, which was higher by 10 points, a Connecticut-based trader said.

The convertibles of solar names including Trina Solar Ltd., JA Solar Holdings Co. Ltd., and Hanwha SolarOne Co. Ltd. were quiet, but their shares were higher, traders said.

Cobalt International Energy Inc.'s 2.625% convertibles, issued in a $1.2 billion deal that priced in mid-December, extended gains, with the newish paper higher by another couple of points outright, and by about a point on a dollar neutral, or hedged basis.

Communications equipment maker JDS Uniphase Corp.'s 1% convertibles due 2014 traded around par, while, Alcatel-Lucent SA's 2.75% convertibles due 2025, which are putable and callable in June, traded down 0.125 point to 100.75, according to Trace data.

Shares of Alcatel-Lucent, a global telecom-equipment maker, were upgraded by Credit Suisse to "neutral" from "underperform" in light of the debt capital the company has secured that should provide ample liquidity through at least 2015.

DDR Corp. traded around 112.125 versus an underlying share price of $15.80. The convertibles of the real-estate-investment trust have not moved in tandem with the rest of its sector, which has come in of late, a New York-based trader said.

DDR is a "REIT name that has been on guys' radars, but they were not quite ready to pull the trigger," the trader said.

Stocks snapped a two-day winning streak, turning decidedly lower after minutes from the Federal Reserve's December policy meeting revealed that committee members disagree on whether the U.S. central bank's purchases of Treasuries and agency mortgage bonds, or quantitative easing policies, should persist through the end of 2013.

The Dow Jones industrial average ended at 13,391.26, down 21.19 points, or 0.2%, after an outsized 300-point-plus gain on Wednesday.

The S&P 500 stock index lost 3.05 points, or 0.2%, to 1,459.37, and the Nasdaq Composite Index pulled back 11.7 points, or 0.4%, to 3100.57.

SunPower surges

SunPower's 4.75% convertibles due 2014 traded up about 2 points to 97 with trades also at the 97.5 level.

SunPower's 4.5% convertibles due 2015 traded up to 95 and as high as 96.25, which was up 2 to 3 points on the day.

SunPower shares surged $2.94, or 48%, to $9.07. The shares had closed Wednesday at $6.13.

SunPower announced, together with MidAmerican Renewable's solar unit, a $2.5 billion deal under which MidAmerican will acquire SunPower's 579-megawatt Antelope Valley Solar Projects.

After the deal was announced, Lazard Capital Markets LLC upgraded the SunPower shares to "buy" from "neutral" and raised its price target on the shares to $11.00.

The convertibles of the San Jose, Calif.-based solar power equipment maker traded relatively actively.

The "low dollar stocks" of other companies in the solar sector, including Trina, JA Solar and Hanwha, also jumped, but the "bonds haven't traded too much," a trader said.

Meanwhile, Suntech Power's 3% convertibles were quiet for much of the session but ultimately traded up 10 points to 55.

"The bonds did trade a bit more than usual," a New York-based trader said, but he said he wouldn't call it a sector focus.

Cobalt adds a point on swap

Cobalt's new 2.625% convertibles due 2019 traded up another 2 points or more to about 105, while the underlying shares added another 42 cents, or 1.7%, to $25.75.

The move was on top of a 2-plus point move on Wednesday.

The convertibles were seen about a point better on swap, according to an East Coast-based buysider.

"These are getting a bit extended I think, but there is fundamental demand pushing them higher," the buysider said.

The convertibles priced initially at a 0.75-point discount to par on Dec. 12, but traded up quickly in the secondary market amid high demand for the large issue of the Houston-based oil exploration and development company focused on deepwater U.S. Gulf of Mexico and offshore Angola and Gabon.

Mentioned in this article:

Alcatel-Lucent SA NYSE: ALU

Cobalt International Energy Inc. NYSE: CIE

DDR Corp. NYSE: DDR

Hanwha SolarOne Co. Ltd. Nasdaq: HSOL

JA Solar Holdings Co. Ltd. Nasdaq: JASO

JDS Uniphase Corp. Nasdaq: JDSU

SunPower Corp. Nasdaq: SWPR

Suntech Power holdings Co. Ltd. NYSE: STP

Trina Solar Ltd. NYSE: TSL

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