Distressed convertibles extend gains; Hutchinson, Finisar strengthen; Evergreen Solar steady

By Rebecca Melvin

New York, June 12 - Distressed convertibles shone in the past week, while new issuance took a breather, market sources agreed.

Three new issues were priced in the week, down from seven deals the previous week.

New issue valuation and terms continued to tighten, with the tenor of convertibles offerings lengthening out and the price of convertibles becoming less cheap, they said.

"Issuers are really testing the ability of the market ... but so far, everything is getting done," a Connecticut-based sellside trader said.

No one feared that the new issuance spree would dry up yet, however.

High yield may have gotten the better of convertibles this week, a New York-based sellside trader said, but that doesn't mean it won't switch back. It's a competition, of sorts, he said.

Disk-drive components maker Hutchinson Technology Inc. added another point on Friday, representative of a swath of distressed paper that has traded up recently amid no real news, but as market demand has outpaced supply.

Finisar Corp.'s 2.5% convertibles jumped Friday and have also been bid up in recent sessions amid tight supply.

Evergreen Solar Inc. convertibles, which moved up Wednesday along with a pop in their underlying shares, were essentially unchanged on a dollar neutral basis on Friday, trading in the mid-40s.

But United States Steel Corp., which is also a distressed name now, came off along with its underlying shares.

Although primary issuance in the United States seems to be taking a breather, it continued overseas. On Friday, two new issues priced, including a Regulation S deal for metals and mining concern Vedanta Resources plc, which priced through its subsidiary Vedanta Resources Jersey Ltd. The issuer sold an upsized $1.25 billion of seven-year convertible to yield 5.5% with a 35% initial conversion premium.

Meanwhile, Russian oil company Alliance Oil Co. Ltd. priced an upsized $265 million of five-year convertible bonds at par to yield 7.25% with a 27.5% initial conversion premium.

Computer glitch

Traders were frustrated with computer problems Friday that briefly halted trading on the floor of the New York Stock Exchange for more than 200 stocks. Trading continued electronically without disruption. But the problem did cause glitches among some trading desks.

"It's affecting us," a Connecticut-based sellside trader said. "I'm having trouble with the specialist on the floor. It seems more like a clerical problem. They are having trouble sending and receiving orders. It's weird."

Hutchinson moves up

Hutchinson Technology's 3.25% convertibles due 2026 traded up to 46 on Friday, extending gains notched Wednesday, when the paper went to 45 from 40.5 bid, 41 offered amid no particular news from the Hutchinson, Minn.-based supplier of suspension assemblies for disk drives.

Hutchinson's shorter paper, the 2.25% convertibles due 2010, was bid up without trading on Wednesday.

"In the best of times these names are prone to sharp moves, but generally on news, rumors, what have you, but a catalyst," a New York-based sellside trader said. "Of late, this area has moved all in one direction, higher, with little or no catalyst with the obvious exception of supply and demand."

The approach to the 6% to 8% paper, up 40% to 60% is "pickier," as opposed to outright distressed names, the sellsider said.

And it's possible that it's rotation as those better credits would have been purchased earlier when credit markets initially began to unfreeze, and now there's profit taking and reallocation further out the risk curve.

"I also have to imagine, whether conscious or not, that JetBlue coming to market showed demand for riskier credit," the sellsider said.

JetBlue Airways Corp. priced an upsized $175 million of convertible debentures to yield 6.75% with a 15% initial conversion premium on June 3.

Finisar gains

Finisar's 2.5% convertibles due 2010 traded up 72 on Friday from 54.50 on Wednesday, according to a West Coast-based trader. Prior to that, on May 29, the paper traded at 61.50.

The paper "was not priced right when we first found them. People just don't do their work. We started buying them on May 22 at 57.50," the trader said.

The fiber optic subsystems maker reported a fourth-quarter net loss on Wednesday that narrowed due to lower operating expenses and an improvement in order trends.

Its net loss fell to $24.20 million from $44.11 million for the year-earlier quarter. Revenue fell 3.6% to $116.66 million from $121.01 million in the year-earlier quarter, hurt by a fall in segment revenues.

Shares of the Sunnyvale, Calif.-based company closed down 6% on Friday to $0.80 a share. The company has a market capitalization of about $371.26 million.

Evergreen in trade

Evergreen's 4% convertibles due 2013 were trading in the mid 40s on Friday, unchanged on a dollar neutral basis, having moved up from about 37 with the stock on Wednesday.

Shares of the Marlboro, Mass.-based solar company sagged 6% on Friday after popping 19% on Wednesday amid chatter about the solar market in China.

"The arbs were covering their stock when the stock popped like that. If you were on a heavy hedge you probably didn't do very well in this move. The bonds haven't expanded, they just tracked up," a Connecticut-based sellside trader said.

But the convertibles are still very cheap, he said. Another trader said the paper was "very interesting" at these levels.

"It's an underlooked name, and it looks like it finally got attention," the sellsider said.

Any news out of China about the prospects for the solar energy market is pertinent to the name, he said. "China is the country and the government that moves the needle in this space."

The trader mentioned that the convertibles have not responded to Evergreen's equity raise that was a huge positive in terms of credit enhancement.

"A lot of this is in the hands of arbs, and it's under followed. It needs some guys to buy it for value. It's got a yield in the mid teens and an 80% to 100% premium," he said.

Operationally it's a story as well, since it's a potential takeover candidate, he said. Although a knock on the name is its U.S. operations, it does have "a bit of a story."

Its solar cell technology is essentially a semiconductor business.

U.S. Steel slips

U.S. Steel's 4% convertibles due 2014 traded at 137 and 138 on Friday, down from 145 on Thursday.

Shares of the Pittsburgh-based steelmaker were down by $2.51, or 6%, to $39.32.

The convertibles have been volatile since pricing, spiking up to about 120 during their first week after pricing, but then pulling back, and then moving back up.

U.S. Steel has been moving on the prospects for global economic recovery, which would boost steel demand.

Mentioned in this article:

Hutchinson Technology Inc. Nasdaq: HTCH

Finisar Corp. Nasdaq: FNSR

Evergreen Solar Inc. Nasdaq: ESLR

JetBlue Airways Corp. Nasdaq: JBLU

United States Steel Corp. NYSE: X

Vedanta Resources plc London: VED

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.