SunEdison flat to slightly higher in gray market; older SunEdisons down; FXCM bounces

By Rebecca Melvin

New York, Jan. 21 – SunEdison Inc.’s planned $350 million of 7.25-year convertible senior notes were flat to slightly higher in the gray market on Wednesday ahead of final terms seen being fixed after the market close, sources said.

A late gray market level in the SunEdison deal was 100 bid, 100.25 offered, which tightened on the offer side from 100 bid, 100.75 offered earlier in the day. But that was well below one trader’s valuation of 102.8 at the midpoint of talk, using a credit spread of 625 basis points over Libor and 37% vol.

That vol. was disputed by a second trader, who said vol. should be higher for this valuation.

Meanwhile, SunEdison’s existing convertible bonds – of which there are three for $1.8 billion outstanding – traded down in the early going Wednesday as market players eyed “another issue going on the pile.”

FXCM Inc. was a feature of trade for a third consecutive day, jumping to 58 bid, 60 offered from 41 bid, 43 offered on Tuesday, a New York-based trader said.

FXCM shares also rebounded, closing at $2.33, which was up 46% on the day. But the level was still down 80% since client losses on a spike in the Swiss franc nearly swamped the New York-based foreign exchange company.

A $300 million two-year financing arrangement from Leucadia National Corp. rescued the company, which on Wednesday said it was raising margin requirements for foreign exchange products globally, as well as on gold in overseas jurisdictions.

Aside from SunEdison and FXCM, convertibles traded pretty quietly, traders said.

There was some positioning of names ahead of upcoming earnings releases, particularly in the technology sector. But overall, liquidity was lackluster as the holiday-shortened, four-day week hit its midpoint. Financial markets were closed on Monday in observance of Martin Luther King Jr. Day.

The valuations of certain tech names like Red Hat Inc. and Intel Inc. were seen to be fairly well-supported amid expectations of a general pick up in vol. in technology, a trader noted. But the rest of the market was feeling a little unhealthy with low breadth, low liquidity and something of a bifurcation in pricing, in which “some securities were up points over the last month, while others were down 1 point to 1.5 points for no particular reason,” a New York-based trader said.

“I think it is viewed that tech may be the next sector where there will be something to do, and people are prepositioning ahead of that,” the trader said.

Market players continued to watch Treasury yields, and one source said that the lower yields may prove to have a chilling effect on the convertibles primary market.

“The 10-year plunged and has been hovering meaningfully below 2% for a while, and that may prevent some people from pulling the trigger on convertible offerings. They may be saying, ‘let’s do straight debt if we can,’” a New York-based sellsider said.

SunEdison flat in gray

The SunEdison convertible bond offering was par bid in the gray market, even though the deal valued higher at 102.8 using a credit spread of 625 bps over Libor and 37% vol.

Deal talk was for a 2.125% to 2.625% coupon and a 32.5% to 37.5% premium.

The new paper represents SunEdison’s fourth convertible bond deal priced in a little more than a year.

In June, the St. Peters, Mo.-based silicon wafer maker priced $600 million of 0.25% convertibles due 2020, and in December 2013, the company priced $600 million of 2% convertibles due 2018 and $600 million of 2.75% bonds due 2021.

Whether the $5.2 billion market cap maker of silicon wafers for the semiconductor industry has worn out its welcome in the convertibles market was a question that would only be based on how rich or cheap the deal was, a New York-based trader said.

“It’s all about the terms. That will decide,” he said.

The terms looked pretty favorable with a higher coupon corresponding to the wider credit spread compared to the last deal.

In June, when the 0.25% convertibles priced, the deal was valued using a credit spread of 475 bps and a 40% vol.

One trader on Wednesday suggested that the vol. on the new deal should have been higher than the 37% input provided by one source.

SunEdison planned to price $350 million of convertible senior notes under Rule 144A via joint bookrunners Goldman Sachs & Co., Barclays, Macquarie Capital (USA) Inc. and Morgan Stanley & Co. LLC.

The notes, which have a $52.5 million greenshoe, are non-callable, and the deal is coming with a call spread.

There is takeover protection and full dividend protection in the form of a conversion rate adjustment.

Proceeds will be used to fund a portion of the company’s acquisition of First Wind Holdings LLC and about $119.1 million to repay all or a portion of debt incurred to purchase 1.6 GW of production tax credit qualified turbines.

Remaining proceeds will be used to fund working capital, to accelerate growth of the business and for other general corporate purposes and to fund the cost of capped call transactions.

In connection with the pricing of the notes, the company plans to enter into capped call transactions with counterparties that may include the initial purchasers.

Older SunEdisons trade down

“At least the new paper is longer dated,” a convertibles market source said in defense of the new deal. Still holders of the old paper saw some erosion of price in the face of another lump of SunEdison product.

The SunEdison 0.25% convertibles due 2020 were seen at 95 early Wednesday with shares up 3%. They were said to have contracted 1.5 points to 2 points.

The bonds were 93 versus Tuesday’s closing share price of $18.56.

The two older A and B tranches were both said to be down 0.5 point to 0.75 point.

The SunEdison 2% convertibles, or the As, were seen at 141.375, and the 2.75% convertibles, or the Bs, were seen at 144.25 versus a share price of $18.56, a trader said.

SunEdison shares were up on the heels of the news and closed up 14 cents, or 0.8%, at $18.70.

Mentioned in this article:

FXCM Inc. Nasdaq: FXCM

SunEdison Inc. Nasdaq: SUNE

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