SunPower comes in on hedge after Total bid; Horizon retraces gains; Kodak slide continues

By Rebecca Melvin

New York, April 29 - SunPower Corp. was the name of the day in the convertible bond market Friday on news that French energy major Total SA has offered to pay $1.37 billion for a majority stake in the San Jose, Calif.-based solar power company.

SunPower's convertibles were higher outright but came in on a hedged basis amid a spike in the underlying shares.

Horizon Lines Inc. was also in trade Friday, retracing gains notched Thursday, after the Charlotte, N.C.-based shipping company reported a wider first-quarter loss on higher revenue.

The Horizon convertibles popped early Thursday on speculation, later confirmed, that the government is reducing a fine being imposed on the company related to antitrust charges, which reduces the specter of a default on the convertibles.

Eastman Kodak Co. moved lower again, changing hands at 84.75 versus a share price of $2.75, compared to at 85.5 versus a share price of $2.85 and also 86.68 versus a share price of $2.97 on Thursday.

Kodak came in on a hedged basis Thursday as its shares dropped after the digital imaging company reported that it swung to a first-quarter loss that was worse than expected.

Overall, activity picked up a little bit toward the end of the week compared to the beginning, when volumes and activity were akin to the summer slowdown.

Earnings news brought mixed action in the convertible market during the week with some names going up and some going down. But on Friday, many of the names in trade were lower on a hedged basis.

It was "not a great day," a New York-based sellside trader said, citing generally low volume with a good percentage of it from SunPower alone. The solar M&A news didn't prompt trading action in other solar convertibles, of which there is a healthy handful.

"...the rest was a mixture of investment-grade benchmark names and a couple other random ones," the trader said of Friday's volume.

SunPower comes in on hedge

SunPower's 4.5% convertibles due 2015 traded at 115.5 versus a share price of $21.75, which was higher by nearly 14 points on an outright basis, but down about 4 points on swap, a Connecticut-based sellside trader said.

The SunPower 4.75% convertibles due 2014 traded at 110 versus a share price of $21.75, which was slightly higher compared to previous levels, but lower on a hedged basis by 2 or 3 points.

Shares of the company spiked up $5.57, or 35%, to $21.69 in heavy volume.

"SunPower was the big name of the day, and it's always a tricky trade," a New York-based sellside trader said.

"The bonds were issued at a very low premium and they expanded a lot," the trader said, adding, now they're a better credit and vol. is lower, "with arguably implied investment-grade credit - which I think people will come to look at it as, if they don't already, and the borrow is going to be more difficult."

France's Total, an oil and natural gas giant, has bid for up to 60% each of SunPower's outstanding class A and class B common shares for $23.25 a share.

That represented a premium of more than 44% to SunPower's class A closing share price of $16.12 on Thursday.

Still a hedged play?

The question of whether SunPower will remain a hedged name in the convertible bond market is difficult to say, the trader said.

"Before you had a smallish company, and you really wanted a lot of hedge on and now you've got bonds, you've got the implied credit of a world class oil company," he said.

It's going to be tricky for hedge guys, and on the other hand, there are going to be a lot of outrights who want this, he said.

"Vol. has come way down and it's going to be harder to borrow the stock; I suspect that Total is going to want to hang on to it," the trader said.

There wasn't any evidence in the convertible bond market that the solar M&A activity was prompting speculation about other solar companies that may be candidates for tie ups.

"I saw nada," a New York-based sellside trader said regarding action in other solar power company names.

Last summer, the SunPower shares were $10.00.

Horizon slips on earnings

Horizon Lines' 4.25% convertibles due 2012 traded down to 85 on Friday compared to up to 88.75 Thursday.

Shares of the Charlotte, N.C.-based domestic ocean shipping and integrated logistics company skidded 37 cents, or 17%, to $1.77 in heavy volume.

The impetus for the day's trading was Horizon's earnings, reported before the market open, in which it revealed a first-quarter loss of $433.3 million, or $1.08 per share, compared to a net loss of $11.7 million, or 38 cents, in the year-earlier period.

Excluding one-time charges, Horizon posted a net loss of $28 million, or 90 cents per diluted share, in the latest quarter, compared with $10.5 million, or 34 cents a share, a year ago.

Revenue rose 40% to $385.4 million from $274.7 million.

A day earlier, on Thursday, the company reported news that made the stocks and bonds of the company move higher.

It said that a federal court had granted a request by the U.S. Department of Justice to reduce the company's fine related to federal antitrust violations in the Puerto Rico trade lane to $15 million from $45 million.

As a result, Horizon is no longer facing the prospect of a default later this month on the 4.25% convertibles.

Mentioned in this article:

Eastman Kodak Co. NYSE: EK

Horizon Lines Inc. NYSE: HRZ

SunPower Corp. Nasdaq: SPWRA

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