Vishay gains on debut; Lennar up slightly in the gray; Sandridge prices $250 million deal

By Rebecca Melvin

New York, Nov. 4 - The convertible bond market's more liquid issues were up about half a point in general on Thursday, supported by rallying stock and bond markets a day after the Federal Open Market Committee announced a new round of quantitative easing aimed at sparking economic growth.

"Delta neutral, liquid names were up a half point," a Connecticut-based sellside trader said.

Vishay Intertechnology Inc.'s newly priced 2.25% convertibles traded up early on Thursday to 102.25 on their debut after the Malvern, Pa.-based chip and electronic components maker priced $275 million of 30-year convertible notes before the market open.

Vishay stock jumped 9% to $13.50, which put shares nearly up to the new convertible's initial conversion price of $13.88.

The so-called happy meal, in which the issuer bought back stock with proceeds thus sending shares higher, resembles a bond priced by Microchip Technology Inc. three years ago, sources said.

The Microchip 2.125% convertibles due 2037 is a very long-dated piece of paper that the market treats more like a preferred, one sellsider said.

Microchip reported earnings after the market close that showed net income for the Chandler, Ariz-based chipmaker more than doubled, boosted by strong sales and an acquisition. Shares were unchanged in after-hours trading.

Also in the primary market, Lennar Corp. was seen in the gray market at 100.5 bid, 102 offered after the Miami-based homebuilder launched a $350 million offering of 10-year convertible notes for pricing after the close.

Lennar's older 2% convertibles due 2020, which is a $275 million issue priced in April, traded unchanged at 96, a syndicate source said.

After the market close, Sandridge Energy Inc. priced a $250 million offering of convertible perpetual preferred stock at par to yield 7%.

And the market saw one more issue launch: InterOil Corp. planned to price $61 million of five-year convertible bonds before the market open Friday that were talked to yield 2.75% to 3.25%, with an initial conversion premium of 22.5% to 27.5%, according to a syndicate source.

Overall, the convertible bond market was active and higher on Friday, with market players expecting a continuation of the uptick for the time being.

"I guess from now to year-end, this market is going to be okay. That's what we're anticipating. It may be a different story next year," a New York-based convertibles buyside analyst said.

The broader markets rallied, helped by the FOMC action and a follow-up article written by chairman of the Federal Reserve Board of Governors Ben Bernanke, published in the Washington Post.

In the article, Bernanke outlined the Fed's motivation in pursuing further quantitative easing and argued why the Fed's current approach looks to be effective.

He cited easier financial conditions for promoting growth, including lower mortgage rates to promote more activity in housing, lower corporate bond rates, and higher stock prices to boost consumer wealth and help increase confidence.

As for Thursday's push upward in stocks, one New York-based convertibles trader attributed the move to Bernanke: "He's lifted them [stocks] on his shoulders like a child and started running with them."

Vishay gains on debut

Vishay's newly priced 2.25% convertibles due 2040 ended the session at 102 bid, 103 offered, with its shares up 9% after surging 11% for much of the day.

The 30-year bond is non-callable for 10 yeas. It was being played on a 90%ish delta, and players were looking at the structure as the same as MicrochipTechnology Inc.'s 2.125% convertibles due 2037, a New York-based sellsider said.

"It's going to trade like a preferred; people are looking at it on a breakeven basis," another sellsider said, referring to premium to coupon.

Another player referred to the new issue as a "happy meal." Because the issuer was buying back shares at the same time that it was issuing the converts, shares were moving higher. Often with a new issue, shares move lower as hedge funds short the common and buy the convert along with pricing the converts.

The initial conversion premium for the new issue is 12.5%.

Pricing came toward the cheap end of talk for the coupon, which was talked to yield 2.125% to 2.625%, and at the midpoint of premium talk, which was 10% to 15%.

The senior notes will be non-callable for 10 years and then provisionally callable subject to a 150% price hurdle. There are no puts.

Vishay turned in an impressive quarter when it reported earning on Tuesday. The maker of discrete semiconductors and passive electronic components earned $89.8 million, or 47 cents per diluted share, compared to $2.3 million, or one cent per diluted share, in the same period last year. Analysts had been expecting earnings of 41 cents per share.

Revenue rose to $694.4 million from $525.3 million for the same period in 2009. Analysts had been expecting $675.5 million.

Behind the performance was a favorable pricing environment, volume at pre-recession levels and low fixed costs. Most of its markets were strong, including automotive, industrial and fixed telecom markets, but computing and consumer markets were slowing somewhat. For the fourth quarter, Vishay expects to post revenue of $650 million to $690 million, matching its third quarter.

With strong free cash flow, the company is well positioned to continue its acquisition strategy.

Lennar higher in gray

Initially, the new Lennar convertibles weren't heard in the gray market, but by afternoon the paper, which was seen pricing after the close, was quoted up half a point to 2 points.

The Rule 144A deal was being sold via joint bookrunners J.P. Morgan and Citigroup, and it has a $52.5 million greenshoe.

The convertibles are non-callable for five years until Dec. 20, 2015, with a put in year five. There is dividend and takeover protection.

Proceeds are for general corporate purposes, which may include repayment of outstanding debt and potential acquisitions of real estate.

Lennar is a homebuilder and provider of financial services.

Mentioned in this article:

Lennar Corp. NYSE: LEN

InterOil Corp. NYSE: IOC

Microhip Technology Inc. Nasdaq: MCHP

Sandridge Corp. NYSE: SD

Vishay Intertechnology Inc. NYSE: VSH

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