WaMu extends gains on $7 billion infusion; AMD weaker; LDK Solar to price

By Rebecca Melvin

New York, April 8 - Of two big names trading in the convertible bond market on Tuesday, Washington Mutual Inc.'s convertible preferreds extended gains on a better credit picture, but Advanced Micro Devices Inc.'s bonds were lower on a weaker one, market participants said.

Washington Mutual's 7.75% convertible preferreds were lower on an outright basis, but up as much as 5 points intra day on a hedged basis. They ended up about 3.5 points, versus a 10.2% drop in their underlying shares, sources said.

The Seattle-based savings and loan announced a bigger-than-expected infusion of $7 billion in new capital, as well as plans to cut its dividend and exit the wholesale lending business.

Meanwhile Advanced Micro Devices' two convertible issues were down about 1.5 points to 2 points on a 4.9% drop of its underlying shares after the Sunnyvale, Calif.-based semiconductor company said first-quarter revenue was lower than expected and that it will cut costs by reducing its workers by 10%.

"Washington Mutual was most notable name. It was up 3 points yesterday and 4 today," a Boston-based buysider said of the trading day.

But "it was a pretty quiet day," a West Coast-based sellside trader said. And many concurred.

Of names in trade, financials continued to get play. Citigroup Inc. was seen up in line with its underlying shares, and National City Corp. was better against a lower stock price "due to outright demand and deal volatility," a Connecticut-based sellside trader said.

In the primary market, China's LDK Solar Co. Ltd. announced an offering of $300 million of convertibles, which are expected to price Wednesday after the market close along with Globalstar Inc.

Globalstar announced last week that it plans to price $135 million of 20-year convertible senior notes after the markets close Wednesday.

Neither deal was causing much of a stir due to problems with the availability of stock borrow, sources said.

"I'm not that excited about the deal," a New York-based buysider said of LDK. The buysider also said he suspects there is a backlog of new issuance, and that the market may see more so-called breakfast deals, in which a new deal is announced early and prices later the same day, as a way to manage stock volatility.

WaMu gains again

Washington Mutual was again a centerpiece of trade, with the 7.75% cumulative perpetual convertible preferreds, which have a par of $1,000, down 1.84% on an outright basis, but up 3 to 4 points from a hedged perspective.

"That makes sense as it's now a better credit than yesterday, a Connecticut-based sellside trader said.

The preferreds were seen in trade at $855, versus a stock price of $11.75, compared with $872.5, versus a stock price of $13 on Monday.

The old preferreds, the 5.375% PIES due 2041, which trade much less frequently than its newer sister issue, were seen at 31.20 to 31.30 in the mid afternoon, down from 32.03 in early trade, a sellside source said.

"WaMu improved because the yield spread is up," the sellsider said.

The struggling savings and loan said it will receive $7 billion from an investment group led by private-equity firm TPG. Under the deal, TPG will receive two seats on the bank's board, and Washington Mutual will focus further on retail banking by exiting the wholesale lending business and closing all of its freestanding home loan offices. These moves will involve cutting 3,000 jobs.

The company also said it will reduce its dividend to a penny a share from 15 cents a share.

Shares of Washington Mutual (NYSE: WM) closed down $1.34, or 10.2%, at $11.81.

AMD weakens slightly

Advanced Micro Devices' 5.75% convertible senior notes due 2012 ended the day down 1.7 points at 71.685, compared with 73.4 late Monday. The Advanced Micro 6% convertible senior notes due 2015 ended the session at 63.966, down from 65.928 on Monday.

AMD shares (NYSE: AMD) closed down 31 cents, or 4.9%, at $6.03.

"My understanding is that they were holding up okay," a West Coast sellside trader said of the AMD convertibles. "They came in, but it was not an absolute meltdown."

Another sellsider referred to the company's wider credit default swaps, indicating that it was more expensive to protect against a company default on debt, and pointing to weakening in the convertibles.

The company said that it expects revenue for the first quarter ended March 29, to be about $1.5 billion, a 22% increase compared to the first quarter of 2007, but down 15% compared to the fourth quarter of 2007.

The decrease was due to lower than expected sales across all business segments, the company said.

AMD had previously anticipated first quarter revenue to decline in line with seasonality. As a result of its workforce reductions, AMD expects to take a restructuring charge in the second quarter. AMD will report first quarter results after market close on April 17.

The negative news didn't seem to spark much trading of other convertibles in the technology sector, a buyside source said.

"There's a lot of cheap stuff, but you have to be worried about people bringing new issues, like with Suntech. That's a big concern that an issuer is going to bring another deal. You have to be careful," a New York-based sellsider said.

"There are a lot of busted convertibles, and there are some interesting yield plays, but you have to be careful as people are trying to delever, and stuff is for sale," he said.

LDK to price $300 million deal

LDK Solar plans to price $300 million of five-year convertibles senior notes after the market close Wednesday. The notes were talked to yield 3.5% to 4.5% with an initial conversion premium of 25% to 35%.

"The borrow stinks, kind of," a sellside trader said. "There's a lot of 'me too' companies in this space. It's a bit of an arms race, and it's capital intensive, with no free cash flow. I don't see very many people interested."

A buysider contrasted it with Suntech Power, which he said was a great credit and high vol, a great combination.

"You can't get a borrow," he said of LDK, even though a borrow facility is being arranged by UBS. "It's coming up with borrow only on today's delta of 65%. You can't delta hedge this if the stock sinks."

The Rule 144A deal will be sold via underwriters Morgan Stanley, UBS and J.P. Morgan.

The notes, which will be convertible into American depositary shares of LDK, will be non-callable for three years, with a soft call after that subject to a hurdle of 130%. There is a put in year three. The notes have full dividend and takeover protection, and optional net-share settlement.

LDK is a solar power wafer maker based in China's Xinyu City.

"It's an interesting space. It's growing. It's further upstream than a Suntech. And they are looking to further integrate backwards and make its own silicon, which is low cost because they use scrap silicon," a Connecticut-based sellside analyst said.

Suntech Power Holdings Co. Ltd., a Wuxi, China-based maker of solar cells, priced $500 million of five-year convertibles to yield 3% with an initial conversion premium of 36% on March 11.

Sources put the credit spread on LDK at about 750 basis points over Libor to as much as 1,000 bps over, with a volatility at 45%, where vol. is typically capped.

Using inputs in that area and assuming no borrow, it looks 2% cheap, a New York sellside analyst said.

LDK plans to use proceeds to enter into forward contracts to buy back about $150 million of stock. Remaining proceeds to be used to fund construction of a polysilicon plant and to expand polysilicon wafer production.

Globalstar has borrow problems too

The other issue expected to price Wednesday has bad borrow as well, sources said. Globalstar plans to price $135 million of 20-year convertible senior notes, talked at a coupon of 5.25% to 5.75% and an initial conversion premium of 45% to 50%.

Merrill Lynch and Deutsche Bank are the joint bookrunners for the registered off-the-shelf offering.

Globalstar, a Milpitas, Calif.-based provider of satellite voice and data services, intends to enter into a concurrent share lending agreement involving 15 million to 20 million common shares with a Merrill Lynch affiliate to facilitate the establishment of hedge positions.

But one source said he suspected an issue of this type would sell primarily to outrights.

Part of the proceeds will go to buy government securities for an escrow account to fund the first six semiannual interest payments.

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