AMD gains; Chiquita adds on debt financing; School Specialty, Powerwave file bankruptcy

By Rebecca Melvin

New York, Jan. 28 - The convertible bond market was relatively sleepy on Monday as market players watched generally flattish markets and anticipated several important earnings announcements on Tuesday.

Two convertibles issuers declared Chapter 11 bankruptcy on Monday, however: School Specialty Inc. and Powerwave Technologies Inc.

Neither School Specialty nor Powerwave's three convertible bond issues were heard in trade after the filings.

"It's still price discovery mode," a trader said.

Elsewhere, Auxilium Pharmaceuticals Inc.'s 1.5% convertibles remained active in trade but flattish on Monday after the upsized $325 million of the 5.5-year convertible senior notes debuted in the convertibles secondary market on Friday.

Among other names in trade, Advanced Micro Devices Inc. was trading actively and higher again on Monday, extending gains notched last week when the company posted better-than-expected quarterly revenue.

AMD's 6% convertibles due 2015 traded up to 97 from 94 at the end of last week and were called a point better on Monday alone.

Chiquita Brands International Inc.'s convertibles were up 2 points to 2.5 points on Monday after the Charlotte, N.C.-based produce company said that it was raising more than $400 million of straight notes, its first debt financing since the convertibles priced in 2008.

Away from the distressed arena, Mylan Inc.'s 3.75% convertibles were in trade and lower by about 0.125 point at about 218 versus an underlying share price of $28.25.

One trader said there was a seller of the Mylan convertibles and that brought the price down slightly from where they were trading on Friday.

On Tuesday, Ford Motor Co. will be reporting as well as Peabody Energy Corp. and D.R. Horton Inc.

As for the convertibles secondary market overall, traders said it was very quiet and volume was light.

"There are a lot of earnings on Tuesday, and people are lying low for today," a New York-based trader said.

"The high-yield market is still richly priced, and convertible are fully priced as well, and as for the new issuance last week, the market can absorb a lot more paper, so it's not like people are dying to sell stuff to make room for new paper," the trader said.

Short dated, low yield and high quality issues, or those considered money good, still have a fairly strong bid, he said.

In the primary market, a subsidiary of JKX Oil & Gas plc priced $40 million of 8% five-year unsubordinated convertible bonds at par of $200,000 per bond to yield 10.5% and with an initial conversion premium of 30%, according to a term sheet.

The Regulation S deal, sold via bookrunner ISM Capital LLP, has a redemption price at maturity of 115.907%.

AMD extends gains

AMD's 6% convertibles due 2015 traded up to 96.50 to 96.75 and then as high as 97 later Monday, even as the underlying shares of the Sunnyvale, Calif.-based chipmaker tailed off into the close, ending down 3 cents, or 1%, at $2.82.

AMD reported last Tuesday fourth-quarter revenue of $1.16 billion, which was down from $1.69 billion in the year-earlier quarter but was better than the $1.149 billion that analysts expected.

Nevertheless, the outlook for the current quarter was weaker. AMD guided down 9% from its fourth quarter, give or take 3%. The midpoint of AMD's revenue forecast is $1.056 billion.

"The bonds were 93 last week, and the company announced better numbers," a New York-based trader said.

A second trader said he thought the pricing was "getting a little aggressive," given that it's still two-year paper and AMD "is still fighting a very tough battle. The margins are much lower than Intel's. They don't have a tablet presence or a significant smart phone presence," he said.

A third trader said in its defense, "It's something short dated, with yield. It's two year paper with a 6% coupon. It was strong all last week after earnings."

Chiquita adds

Chiquita's 4.25% convertibles due 2016 jumped 2.5 points to trade 89.375 bid, 89.625 offered on Monday.

Chiquita shares also surged, ending up 46 cents, or 6%, at $7.91.

The Cincinnati-based produce company is planning to issue $425 million of eight-year straight bonds, which are non-callable for three years. They are expected to price on Wednesday. Proceeds will be used to repay the company's credit facility and $106 million of 7.5% notes due 2014.

The last debt the company sold was the convertible bonds in February 2008.

The company is also entering into a $200 million asset-based revolving credit facility to help fund the debt repayment.

The company also said that it expects fourth-quarter sales to total about $738 million, up from $722 million in the same period a year earlier.

Chiquita also expects to post an operating loss of $188 million to $233 million, compared with an operating loss of $12 million in the year-earlier period.

Excluding non-cash goodwill and trademark impairment charges of between $170 million and $205 million and restructuring, relocation and other exit charges, the company said it expects its operating loss for the recent quarter to total between $10 million and $20 million.

Stronger banana pricing and logistical savings partially offset lower salad results, lower average European currency exchange rates and several unusual cost items in the 2012 quarter, and the results were in line with the company's previous expectations.

For the full year, Chiquita said it expects to post sales of about $3.1 billion and an operating loss of about $236 million to $281 million. Excluding items, the company said it expects an adjusted operating profit of $1 million to $11 million.

Bankruptcy filings

Among issuers that filed for bankruptcy, Powerwave Technologies has three convertible bond issues, a 2.75% convertible due 2014, a 1.875% convertible due 2024 and a 3.875% convertible due 2027. School Specialty has 3.75% convertibles due 2026.

"Nothing's traded," a trader said.

The School Specialty convertible has a $157.5 million original face value. The bonds were seen around 29.

The Greenville, Wis.-based school supplies company had faced headwinds the last few years given municipal and state budget cutbacks and uncertainty related to of transitioning to state standards.

The company violated covenants several years ago with the lender, which is going to provide debtor-in-possession financing, and the bankruptcy involves what is known as a 363 sale in which a stalking horse bidder establishes itself and an auction is held, a convertibles analyst said.

Powerwave filed Monday for Chapter 11 bankruptcy protection after ballooning losses last year. The company listed assets of $213.5 million and liabilities of $396.1 million, according to documents filed in the U.S. Bankruptcy Court in Wilmington, Del.

The company reported a net loss through the first nine months of 2012 of $153.1 million, compared with a net loss of $35 million in the same period a year earlier.

Mentioned in this article:

Advanced Micro Devices Inc. NYSE: AMD

Auxilium Pharmaceuticals Inc. Nasdaq: AUXL

Chiquita Brands International Inc. NYSE: CQB

D.R. Horton Inc. NYSE: SHI

Ford Motor Co. NYSE: F

JKX Oil & Gas plc London: JKX

Mylan Inc. NYSE: MYL

Peabody Energy Corp. NYSE: BTU

Powerwave Technologies Inc. Nasdaq: PWAV

School Specialty Inc. Nasdaq: SCHS

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