By Rebecca Melvin
New York, June 27 - The first U.S. convertible deal of the week was launched before the market open on Thursday. Starwood Property Trust Inc. planned to price $400 million of 5.5-year convertibles after the market close at a coupon of between 3.75% to 4.25% and a 10% initial conversion premium.
The existing Starwood convertibles, which priced Feb. 11, stumbled on the news, dropping about 2 points on a dollar-neutral, or hedged, basis out of the chute, but ending the session down only about a point, on a dollar-neutral basis, a New York-based sellsider said.
Elsewhere, GT Advanced Technologies Inc.'s 3% convertibles, which in 2012 earned the dubious distinction of being arguably the worst performing issue of the year, traded actively and were seen around 85 versus a share price of $4.07 near the close.
The GT convertibles were pulled into trade by a spike in the underlying shares, which surged following a ratings upgrade to "buy" from "hold" by Canaccord Genuity. The firm's analyst also raised his price target to $5.00 from $4.00, noting that he anticipates a tightening of the polysilicon market possibly by as soon as 2015 because actual capacity is less than theoretical capacity.
In the same sector, SunPower Corp.'s convertibles were a bit better, a New York-based trader said. He quoted the SunPower 4.5% convertibles due 2015 at about 117 with the underlying shares at $20.29, while the 4.75% convertibles due 2014 were seen at 106 with the shares at $20.29, and also at 106.25 bid, 107 offered with the underlying shares at $20.68. The stock ended up 2 cents at $20.31.
The convertibles of Endo Health Solutions Inc. were notably active, but didn't look to have really moved on the day at around 135, market sources said. The underlying shares of the Malvern, Pa.-based specialty health care company settled higher by 12 cents, or about a third of a percentage point, at $37.31.
The convertible market was quiet as stocks gained for a third consecutive day. But convertibles players, lacking faith in the rally, pretty much sat tight rather than buy anything on Thursday that they could have had cheaper on Wednesday, a New York-based trader said.
The S&P 500 stock index gained 9.94 points, or 0.6%, to 1,613.20; the Dow Jones industrial average added 114.35 points, or 0.8%, to 15,024.49; and the Nasdaq stock market gained 25.64 points, or 0.8%, to 3,401.86.
Starwood brings another deal
Starwood launched a $400 million offering of 5.5-year convertible senior notes Thursday in a registered, off-the-shelf deal, that has a $60 million greenshoe, and was being marketed by B of A Merrill Lynch, Barclays and Goldman, Sachs & Co.
The deal came during an exceptionally quiet week in the primary market, although there was a Regulation S offering from Alcatel-Lucent SA on Wednesday when €547.8 million of 4.25% five-year convertible bonds were launched and priced.
The Starwood deal comes fast on the heels of the $600 million of Starwood 4.55% convertibles, however. The new deal matures nine months after the existing bonds.
The new deal was also seen as cheaper than the existing convertible, sources said, and was likely to appeal to outright players, one source noted, although the preliminary prospectus said that it was anticipated that investors would include convertible arbitrage players.
The planned Starwood is a 5.5-year bullet, and a syndicate source said that it amounted to a pure relative-value play. He also said initial response from investors was good.
In February, investors bought $600 million of five-year convertibles to yield 4.55%, with an initial conversion premium of 10%. Proceeds of the older deal were used to originate and purchase commercial mortgage loans and to possibly help fund its planned purchase of LNR. That deal was consummated.
Proceeds of the new deal will also be used to purchase commercial mortgage loans and possibly for general corporate purposes, including payment of liabilities, and working capital.
Shares of the Greenwich, Conn.-based mortgage loan investor added 39 cents, or 1.7%, to $23.93 in unusually high volume on Thursday.
Existing Starwood slips
Starwood's 4.55% convertibles due 2018 lost 2 points out of the gate and ended off a point dollar-neutral, a market source said.
A second market source quoted the paper at 102.625 bid, 103.625 offered at the close versus $24.35.
The existing paper has in initial conversion price of $28.138.
GT Advanced trades at 85
GT Advanced Technologies' 3% convertibles due 2017 traded at 85 versus a stock price of $4.09, according to a trader, and were also seen at 85.75 during the session, according to Trace data.
Shares of the Nashua, N.H.-based solar services and equipment provider surged 50 cents, or 13.85%, to $4.11.
On May 2, the bonds were said to have traded at 81.7 with the underlying shares at $3.67. It wasn't known where the bonds had traded most recently.
The bonds collapsed a few months after they initially priced in September 2012 when the solar equipment supplier warned that it would post a quarterly loss, was cutting 25% of its workforce and wouldn't meet 2013 estimates. At that time, when shares sank to $3.07, the bonds were at 71.
GT Advanced also has a mandatory convertible that is very illiquid.
Mentioned in this article:
| Alcatel-Lucent SA: | NYSE and Paris: ALU
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| Endo Health Solutions Inc. | Nasdaq: ENDP
|
| GT Advanced Technologies Inc. | Nasdaq: GTAT
|
| Starwood Property Trust Inc. | Nasdaq: STWD
|
| SunPower Corp. | Nasdaq: SPWR
|
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