Countrywide, BofA gain on shareholder vote; Fifth Third adds; Evergreen Solar deal looks good

By Rebecca Melvin

New York, June 25 - Countrywide Financial Corp. and Bank of America Corp. convertibles strengthened Wednesday on news that Countrywide's shareholders approved the mortgage lender's long-debated acquisition by Bank of America.

The deal, which is expected to close July 1, looks likely to go through now as shareholders of the ailing mortgage lender gave their consent to the heavily discounted takeunder price, sources said.

Bank of America, for its part, seems to remain unfazed by difficulties surrounding the tie up, including news Wednesday that two states - California and Illinois - filed lawsuits against Countrywide for its lending practices.

Countrywide's series A floating-rate convertible gained about a point, moving up to 97.5, while Bank of America's perpetual convertible preferreds were said to be 0.125 point to 0.25 point stronger.

Elsewhere in financials, Fifth Third Bancorp's convertibles, which priced last week, traded at 112, but KeyCorp, which also priced a convertibles issue earlier this month, remained weak, trading at 98 versus a stock price of $11.50. The underlying shares closed lower at $11.33.

The convertibles market remained quiet and a little bit weaker on Wednesday even as stocks were choppy, rallying briefly after word that the Federal Reserve decided to leave its benchmark rate unchanged at 2%, as expected. The stocks' rally faded, but stocks still ended up for the day.

"On days like this you might see things come in, but nothing is really trading," a Boston-based buyside convertibles trader said.

On the primary side, the market was looking past the $45 million of convertibles that China Sunergy Co. Ltd. expected to price after the market close Wednesday - the deal is too small, sources said; focusing instead on Evergreen Solar Inc.'s $300 million of five-year convertibles expected to price after the market close Thursday.

"We think that they were priced appropriately and that the deal will get done," the Boston-based buysider said of the Evergreen offering.

Evergreen Solar's existing 4.375% convertibles edged down a couple of points to 157. Those in-the-money convertibles are expected to be called next month.

Countrywide, BofA tie up advances

The Countrywide Libor minus 350 basis points series A convertible senior notes due April 2037 traded at 97.25 and 97.5 during the session when its underlying stock was in positive territory. But the stock slipped into negative territory toward the end of the session and was off those levels. Nevertheless, one trader called them up at least a point.

Countrywide's Libor minus 225 bps series B convertible senior notes due May 2037 traded at 94 and 94.25.

"Yeah, the bonds traded up, but they'll probably be quiet from here on out," a Connecticut-based sellside trader said.

Shares of the Calabasas, Calif.-based lender (NYSE: CFC) retraced early gains in heavy volume to close down 8 cents, or 1.7%, at $4.58.

Bank of America's 7.25% series L perpetual convertible preferred closed up at 938 versus a share price of $26.61, compared with 929.5 versus essentially the same share price Tuesday.

Shares of the Charlotte, N.C.-based bank (NYSE: BAC) shed 1 cent on the day.

The bonds went up due to the shareholder vote to approve the Bank of America acquisition.

Also on Wednesday, there was news that two state attorneys general - California and Illinois - have filed separate lawsuits, alleging deceptive and unfair business practices that enticed borrowers into loans and mortgages regardless of their ability to repay them.

"I think BofA factored that in," a Connecticut-based convertibles trader said of the potential legal liabilities that Countrywide could face.

Independent research firm CreditSights estimated that those legal costs could amount to $1 billion to $2 billion.

Yet, questions remain as to why Bank of America continued to pursue the deal. "Still there are other hurdles for Countrywide bondholders as questions remain as to why a shrewd merger and acquisition bank operator like Bank of America would leave so much shareholder value on the table when it could have not thrown good money after the initial bad money preferred stock investment back in August 2007," according to a Wednesday CreditSights report.

"We believe that the answer lies not just in this deal, but in future deals to come as Bank of America, the master of banking market consolidator, does what it does best and that is keep acquiring deposits," the CreditSights report stated.

Fifth Third adds, KeyCorp weak

Fifth Third's 8.5% series G convertible preferreds traded at 112 versus a share price of $11.00. Shares of the Cincinnati-based regional bank (Nasdaq: FITB) closed off that level, but were still higher by 14 cents, or 1.4%, at $10.30.

The bank priced $1 billion of the perpetual convertible preferred stock via Credit Suisse and Merrill Lynch on June 19.

Meanwhile, the KeyCorp 7.75% series A perpetual convertible preferreds traded at 98 versus a share price of $11.50, which was slightly off Tuesday's level. Shares of the Cleveland-based regional bank (NYSE: KEY) closed down 5 cents, or 0.44%, at $11.33.

"People are picking winners and losers in mid-tier banks. They are weighing who in two years is going to be the cheap buy," a New York-based sellside analyst and trader said.

Evergreen Solar lights up again

Every solar company needs its own convertible, or so it seems, according to an analyst, who cited the solar industry's current cash flow limitations and growth prospects as ideal for convertibles issuance.

In this case, Evergreen is going to have two convertibles, but not for long. "Evergreen did say that they are going to provisionally call their existing convert next month, so that will make this [new one] their only convert," a Connecticut-based sellside analyst said.

Evergreen in June 2005 priced $90 million of 4.375% convertible subordinated notes with a seven-year maturity.

The Evergreen 4.375s at one point were well above 200, but in recent trading they were in the area of 160.

"They are only trading at 0.43 over parity; there's no premium," the Connecticut analyst said.

The new deal was seen at fair value to slightly cheap. One New York-based sellside trader said it looked OK using a credit spread of 900 bps over Libor and 45% vol. but mentioned that the stock borrow being facilitated by bookrunner Lehman Brothers would curtail swap trade.

Another source, who made the spread a little tighter than that, said that while the company has Triple C credit metrics, there are a number of positives regarding the company.

"They do the string ribbon technology, and they were saying that it only takes half the silicon to produce their panels, which is beneficial in this era of tight silicon. Also they may be greener than most because their manufacturing facility doesn't use as much energy, and that could be positive for those that are looking to be green all the way through."

One New York-based sellside analyst said, "It's a typical type solar play. It's not the best credit in the world. It's a play on the equity upside; the old converts are deep in the money; and it's not generating cash."

But it works, "if people feel comfortable with solar, and hopefully you get a favorable ruling from Congress one of these days," he said, referring to federal tax incentives for energy alternatives like solar and wind power.

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