Midday Commentary: Planned AMAG looks cheap; Canadian Solar launches $100 million deal

By Rebecca Melvin

New York, Feb. 11 - There were two deals on the U.S. convertibles primary calendar early Tuesday. But both were smallish in size and not really affecting the broader market tone or trading action, a New York-based trader said.

Joining AMAG Pharmaceuticals Inc. on the calendar to price after the market close Tuesday was Canadian Solar Inc., which launched a $100 million offering of five-year convertible senior notes that was talked to yield 4.5% at the midpoint of talk, with an initial conversion premium of 27.5% at the midpoint.

The credit spread on the deal for the Markham, Ont.-based solar power components producer was estimated at about 1,000 basis points over Libor, according to a Connecticut-based convertibles analyst. But the underwriter was going out with 900 bps over Libor. Canadian Solar conducts all of its manufacturing operations in China.

The planned $150 million of five-year convertibles being sold by AMAG were seen very cheap, according to market sources.

Using a credit spread of 600 bps over Libor and a 35% vol., one Connecticut-based trader got the AMAG deal at 103.8 at the midpoint of terms. Even at the rich end of terms, which is for a 2.25% coupon and 35% vol., the deal looked 101.8, he said.

A 35% vol. was deemed a little low by some, however. But even at 40% vol. and using a credit spread of 700 bps over Libor, the AMAG deal was seen cheap, a second market source said.

A third source was using a 45% vol. He said real vol. is in the 50% range.

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