Black Hills mandatory convertible trades ‘in line’ on swap; SunEdison onslaught ongoing

By Rebecca Melvin

New York, Nov. 18 – Black Hills Corp.’s newly priced 7.5% mandatory convertible ended its first day of trading Wednesday just slightly up from par and in line with the underlying common shares after the vertically integrated energy company priced $260 million of the three-year equity units at the midpoint and cheap end of talked terms, a syndicate source said.

The Black Hills 7.5% mandatory ended at $50 bid, $50.5 offered versus the underlying shares’ close at $40.48, which was up 0.6%.

The new Black Hills convertible was “holding up and seeing decent interest,” a second syndicate source said.

Pain continued to be felt in SunEdison Inc., which has been sliding for more than a week. The stock was volatile on Wednesday, swinging between gains and losses, after taking a big hit on Tuesday, and the convertibles were consistently weaker.

The SunEdison 2% convertibles that mature in 2018 fell further to 42.5 early Wednesday, though it recouped some ground intraday to about 45, and compared to 47 on Tuesday.

On Monday, the SunEdison 2% convertibles were 56, and on Oct. 29 they were 81.

“People, in general, are trying to stay away from the name or get flat,” a trader said of the SunEdison convertibles.

Elsewhere, Citrix Systems Inc.’s 0.5% convertibles traded down about 5 points as shares fell 10% on news that the Fort Lauderdale, Fla.-based mobile networking company is spinning off its GoTo business, which includes its GoTo software, and cutting 1,000 full-time and contract employees. The Citrix convertibles fell to 107 bid, 107.375 offered as shares fell $7.88, or 10%, to $70.54.

In January, Citrix announced a restructuring program that cut more than 700 jobs and was expected to save the company about $90 million to $100 million.

ON Semiconductor Corp.’s 1% convertibles fell to 93.7 from 97.7 against shares that came off 8% to $9.89 after word that the Phoenix-based semiconductor company has agreed to buy Fairfield Semiconductor for about $2.3 billion.

But Post Holdings Inc. and Retrophin Inc. shares were sharply higher, and those convertibles were indicated higher. The Post 3.75% convertibles were indicated up at 140.78 from 133.47, and the Retrophin 4.5% convertibles were seen up at 142.86 from 135.79, according to a market source.

In the broader markets, equities were solidly higher, gaining ground after the mid-afternoon release of the minutes of the last Federal Open Market Committee meeting. Those notes showed that most of the central bank officials support an interest rate raise at its next meeting in December.

New Black Hills edges par

Black Hills’ new mandatory convertible closed Wednesday at $50 bid, $50.5 offered versus an underlying share price of $40.48, which was up 23 cents, or 0.6%, on the day.

Earlier in the session the bonds were seen right around their $50 par versus $40.25, which was Tuesday’s closing share price.

The bonds were in line, or flat, on a swap basis, a syndicate source said.

The performance was viewed as positive given a few strikes against the deal from the outset, including smaller deal size, limited liquidity in the underlying shares and the fact that it was a shaky week in the markets leading up to its launch and pricing, the trader said.

“The stock is holding up, and despite it being a smaller deal, there is decent interest,” he said.

On Tuesday ahead of pricing, the deal valued at about 2 points cheap.

Black Hills priced $260 million of three-year equity units, or 5.2 million units at the midpoint of 7.25% to 7.75% talk for the yield and at the cheap end of 17.5% to 22.5% premium talk.

Black Hills also priced about $221.4 million of common stock, or 5.5 million shares at $40.25 each.

Proceeds from both offerings will be used for partial funding of the previously announced acquisition of SourceGas Holdings LLC, which is expected to close in the first half of 2016.

The mandatories have a threshold appreciation price of $47.2938 per share. The minimum settlement rate under the purchase contracts is 1.0572 shares and the maximum is 1.2422 shares.

Joint bookrunning managers for the equity units were Credit Suisse Securities (USA) LLC, Wells Fargo Securities LLC (leads), RBC Capital Markets LLC and BofA Merrill Lynch.

Co-managers were J.P. Morgan Securities LLC, Morgan Stanley & Co. LLC and U.S. Bancorp Investments Inc.

The mandatorires are non-callable with no puts. They have dividend and takeover protection.

Rapid City, S.D.-based Black Hills is a vertically integrated energy company.

SunEdison slide continues

SunEdison’s convertibles continued to drag lower on Wednesday as market players aimed to steer clear of the paper or to “get flat,” a New York-based trader said.

SunEdison shares were volatile. They popped back 23 cents, or 7.6%, to $3.25 during the session, but in after-hours trade they dropped back again.

Intraday, the shares were briefly halted on the New York Stock Exchange due to high volatility. Shares are down 90% since mid-June.

The SunEdison 0.25% convertibles fell into the 20 range, indicated at 29.59 from 38.38 previously, according to a market source.

“It takes a particular kind of arrogance to buy the fifth or sixth convert issue from an issuer. It’s obvious there will be problems sooner or later. Guys just figure they will be the ones to get out and make money,” a New York-based trader said.

Meanwhile, Deutsche Bank analyst Vishal Shah wrote in note on Wednesday, “We continue to believe liquidity concerns are overdone.”

He said the execution of pending transactions along with refinancing of margin loan could act as a positive catalyst for shares.

Mentioned in this article:

Black Hills Corp. NYSE: BKH

Citrix Systems Inc. Nasdaq: CTXS

ON Semiconductor Corp. Nasdaq: ON

Post Holdings Inc. NYSE: POST

Retrophin Inc. Nasdaq: RTRX

SunEdison Inc. Nasdaq: SUNE

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