Evergreen sinks on 'going concern' language; Kodak flat delta neutral on favorable ruling

By Rebecca Melvin

New York, May 13 - Evergreen Solar Inc.'s 4% convertibles traded down to 13 on Friday from 14.5 on Thursday as the underlying shares of the Marlboro, Mass.-based solar company sank following a filing in which it said there is substantial doubt about its ability to continue as a going concern.

Fellow solar power company, Suntech Power Holdings Co. Ltd. saw its convertibles trading Friday at 83, which was down about half a point, according to a Connecticut-based sellside trader.

Eastman Kodak Co.'s convertibles were pretty quiet Friday and about flat dollar neutral as shares of the Rochester, N.Y.-based digital photography company jumped in response to a favorable ruling from a U.S. International Trade Commission judge on a patent infringement case involving Apple Inc.

Meanwhile, Alliant Techsystems Inc. wasn't trading much on Friday either, but its shares dropped sharply and its move for the week through Thursday as one of the week's top gainers dollar neutral most likely no longer held, a New York-based sellside analyst said.

On Friday, the Minneapolis-based defense company's shares slid on news that it was not awarded a 10-year U.S. Army contract for continued operation and maintenance of the Radford Army Ammunition Plant in Radford, Va.

Overall, commodity news was a driver of markets in the past week. Convertibles, which started the week better bid when both equity and credit markets were stronger, held firm through the week compared to other asset classes, and as the underlying shares of several names made wild swings on company-specific news.

Volumes remained light in the secondary, and in the primary market there was $410 million of new paper in three new deals.

Those new deals included PDL BioPharma Inc., which priced $135 million of 3.75% convertibles due 2015; the convertibles ended higher outright on their debut Wednesday by 1.625 points to 2.125 points.

Also Vishay Intertechnology Inc. priced $150 million of new 2.25% convertibles due 2041, which traded up to 102.5 as the underlying shares rose on their debut Tuesday; and JinkoSolar Holding Co. Ltd. priced $125 million of 4% convertible notes due 2016, which were par bid with no offers at the close on their debut Thursday.

Evergreen tanks

Evergreen's 4% convertibles, which are putable in July 2013, traded down to 13 from 14.5 on Friday and the underlying shares fell 33 cents, or 23%, to $1.08 in heavy volume.

There is $203.8 million outstanding of the 4% issue putable in 2013.

Evergreen also has 13% convertibles, of which there is $165 million outstanding, that weren't heard in trade. And Evergreen's 4% convertibles due 2020 have only $12.6 million outstanding.

"I think it was the going-concern language in the 10-Q which they haven't used before in the 10-K," a Connecticut-based sellside analyst said of the slide.

In addition, however, it was a weak quarter and there was also an inventory write down, or $17 million adjustment to inventory, that was concerning, the analyst said.

"The loss was a little worse than expected. Adjusted EBITDA was worse than the Street seemed to be expecting," the analyst said.

Nevertheless, Evergreen was weak going into Friday given that in March it shut its factory and dismissed about 800 workers, and the state's economic assistance agency sought to rescind $58 million in incentives the company was awarded in 2007.

The company said its survival depends on obtaining additional financing from third parties and a successful restructuring of at least a substantial portion of its debt.

Evergreen warned last month it may need to raise cash to continue operations after first-quarter sales fell short of expectations.

Kodak flat dollar neutral

Kodak's 7% convertibles due 2017 traded up at 86.375 with the stock around $3.00 on Friday. That was up about 1.5 points outright but was barely changed delta neutral, a Connecticut-based sellside trader said.

The shares were up 5%, but the bonds were not actively traded.

On Wednesday, the Kodak bonds traded at 85.25 versus a share price of $2.84.

Two weeks ago on April 29, the Kodak convertibles traded many times with one swap print going up at 85.588 versus a share price of $2.86 and outright at the close at 85 to 85.25 with the stock at $2.85. They had moved lower on just about a 100% delta.

Investors were encouraged by word on Friday that a judge at the U.S. International Trade Commission rejected Apple Inc.'s digital-camera patent claims against Kodak.

Kodak's technology does not infringe on Apple's patent rights, and one of the two patents in dispute is invalid, Robert Rogers Jr., a judge at the federal agency that oversees trade disputes, said in a preliminary ruling late Thursday. His decision is subject to review by the agency's six commissioners.

The ruling is the latest development in an ongoing battle between the companies over their patents. Kodak is still attempting to negotiate a royalty-paying deal worth up to $1 billion in a separate claim against Apple and Research in Motion, over a 2001 imaging patent.

Alliant slips outright

Alliant's 3% convertibles due 2024 traded at 115 versus a share price of $74.25 on Friday, compared to 116.25 versus a share price of $76.00 on Thursday, according to a New York-based sellside analyst.

On Friday, Alliant shares plunged $5.33, or 7%, to $70.64, but the bonds weren't actively traded.

Prior to Friday's move the Alliant convertibles had gained 1% on a dollar-neutral basis for the week.

On Monday, Alliant's 3% convertibles traded at 114.625 versus a share price of $74.96 compared to 111.875 versus a share price of $72.11 on May 4. That represented about a half point improvement.

Alliant's shares fell Friday after word that it was notified by the U.S. Army that it had not been awarded a 10-year contract for the continued operation and maintenance of the Radford Army Ammunition Plant in Radford, Va.

Gimme Credit analyst Evan Mann said in a note Tuesday that he expects Alliant Techsystems' growth likely to remain under pressure in the near term and risk leverage to temporarily rise due to potential acquisition activity.

"We are changing our rating to underperform with limited downside," Mann wrote.

When the note came out earlier this week, Mann anticipated that it was likely that the Radford contract would be awarded to Alliant. He said that after the award, Alliant planned to tighten its fiscal 2011 guidance. But even with the award - which it didn't' get, "challenges remain over the near term growth" and "opportunities related to NASA and the Department of Defense are limited," Mann wrote.

Mentioned in this article:

Alliant Techsystems Inc. NYSE: ATK

Eastman Kodak Co. NYSE: EK

Evergreen Solar Inc. Nasdaq: ESLR

JinkoSolar Holding Co. Ltd. NYSE: ADS: JKS

PDL BioPharma Inc. Nasdaq: PDLI

Suntech Power Holdings Co. Ltd. NYSE: STP

Vishay Intertechnology Inc. NYSE: VSH

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