AMD issues up on tender news; General Growth adds on possible bid; TeleCommunication gains

By Rebecca Melvin

New York, Nov. 18 - Advanced Micro Devices Inc.'s two convertible bond issues moved up Wednesday after the Sunnyvale, Calif.-based computer technology company announced it had begun a cash tender for its 5.75% convertibles due 2012, sources said.

AMD's 5.75% paper spiked to as high as 101 but then settled back to about 98, from 94 on Tuesday. Meanwhile, AMD's 6% paper picked up about 4 points to 86 bid, 86.5 offered from 82.5 on Tuesday.

Barclays Capital convertibles analysts recommended investors swap into the AMD 6% paper from the AMD 5.75s due to the company's strong credit and fundamentals, continued potential for buybacks and the longer duration and delta relative to the 5.75% convertibles.

AMD's credit profile has "transformed completely over the last week as a result of the $1.25 billion settlement of its litigation against Intel, signing of a new cross license agreement with Intel, and its tender offer for its 5.75% convertible notes and 7.75% senior notes," Barclays Capital analysts Venu Krishna and Kannan Venkateshwar wrote in a research report.

Also active and higher in trade was General Growth Properties Inc., which saw its convertibles and straight bonds move higher on word that its larger competitor Simon Property Group Inc. might make a bid for some or all of the real-estate investment trust, which filed for Chapter 11 bankruptcy protection in April.

Simon Property has hired an investment adviser and law firm to help it develop a possible bid, according to reports.

Navistar International Corp., a name not often heard in trade, changed hands again on Wednesday at 99.5 versus a share price of $36.25, compared to Tuesday when there was a purchase at 97.862 versus a share price of $35.51 on a 70% delta.

Elsewhere, Ford Motor Co. saw its convertibles continue to track higher despite weaker underlying shares. The Ford 4.25% convertibles due 2016 traded at 114.625 versus a share price of $8.95.

Other recent new issues in traded included TeleCommunication Systems Inc. and Jefferies Group Inc.

But DryShips Inc., which launched a deal after the close of markets Tuesday for $300 million of five-year convertible notes, was not heard in the gray market. That deal wasn't expected to price until Thursday, and in addition it is coming on swap from the underwriters, and therefore may not be widely traded.

Overall, the convertibles markets saw a fair amount of activity on Tuesday, with AMD demanding much of the focus early in the day. But there was other activity in the afternoon, a New York-based sellside desk analyst said.

"It seems like everyone is sitting around saying it's quiet, but then it gets really busy," the sellsider said.

Another sellsider commented that it has been nice that much of the recent activity related to issue-specific news has been in favor of investors. That's a nice change of pace, the Connecticut-based sellside trader said.

AMD expands

AMD's 5.75% convertibles jumped to as high as 101 from 93.875 on Tuesday. But the 5.75s settled back down to 98 bid, 98.25, which was up about 4 points from Tuesday.

AMD's 6% paper moved up about 4 points to 86 or 86.5 from 82.25.

The company's underlying shares rose.

AMD launched a cash tender offer for up to $1 billion of its 5.75% convertible senior notes due 2012.

Initially the bonds traded above par, but then people realized the tender wasn't for the entire issue. There's $1.5 billion in total.

"You have to figure where are these going to trade after the tender," a sellsider said.

But another source said he thought the company "wants to get rid of these things," so there would be further buybacks.

AMD said it plans to finance the tender using the net proceeds from the closing of its private offering of $500 million of senior notes due 2017 and from the receipt of the $1.25 billion cash payment from Intel Corp. in connection with its recently announced settlement agreement with Intel.

The tender offer will end at midnight ET on Dec. 16.

The company said it will pay $990 for each $1,000 principal amount of notes plus accrued interest.

J.P. Morgan Securities Inc. and Citadel Securities LLC are the dealer managers.

The AMD 5.75% paper was trading in the low 80s a week or so ago, and the 5% paper was 10 or 11 points below that.

AMD's credit profile has "transformed completely over the last week as a result of the $1.25 billion settlement of its litigation against Intel, signing of a new cross license agreement with Intel, and its tender offer for its 5.75% convertible notes and 7.75% senior notes," Barclays Capital analysts Venu Krishna and Kannan Venkateshwar wrote in a research note Wednesday.

"In our opinion, the company could use the excess liquidity to continue to buy back the 6% notes in the market. Assuming the company uses this excess cash for debt reduction, the company will be left with a net debt of about $1 billion, which should reduce further as the company moves into positive cash flow territory at the product company level next year," the analysts wrote.

Going forward, they expect the company to amend its guarantee agreement for the Fab 36 debt as a precursor to a complete spinoff.

"In our opinion, the tender for the 7.75s should also help this cause given that Global Foundries is at present classified as a restricted subsidiary under the 7.75% indenture. Based on recent developments, we expect the spinoff timeline to be sooner rather than later," the analysts wrote

General Growth jumps on prospective bid

General Growth's convertible bonds were heard at 86 bid, 88 offered on Wednesday, up from 77 bid, 78 offered previously, according to a New York-based sellside trader.

The General Growth straight bonds and single convertible issue were active and higher on a possible Simon bid, a Connecticut-based sellsider said. There was even talk of Simon bidding for the whole thing, but that seems unlikely, the sellsider said.

Both Simon Property and General Growth are shopping mall REITs. General Growth owns 200 malls.

Simon has hired investment adviser Lazard Ltd. and law firm Lipton, Rosen & Katz to help it formulate a strategy for possibly bidding for General Growth.

TeleCommunication at 110

TeleCommunication's 4.5% convertibles, which priced last week, traded at 110 versus a share price of $8.45 on Wednesday.

"Those traded up out of the gate and have hung in there," a sellsider said.

Meanwhile Jefferies' 3.875% convertibles, which priced at the end of October, and were fairly heavy for some time, traded at par versus a share price of $27.75 on Wednesday.

"Those seem to be coming back," another sellsider said.

Mentioned in this article:

Advanced Micro Devices Inc. NYSE: AMD

DryShips Inc. Nasdaq: DRYS

Ford Motor Co. NYSE: F

General Growth Properties Inc. NYSE: GGP

Jefferies Group Inc. NYSE: JEF

Navistar International Corp. NAV

TeleCommunication Systems Inc. Nasdaq: TSYS

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