Pattern Energy offering looks cheap; Illumina drops outright after sales disappoint

By Rebecca Melvin

New York, July 22 – Pattern Energy Group Inc.’s planned $225 million offering of five-year convertible notes was looking cheap for investors, with fair value seen at 102.5 using a credit spread of 375 basis points over Libor and 28% vol., a Connecticut-based trader said Wednesday.

The Pattern Energy deal was talked at a 3% to 3.5% coupon and 22.5% to 27.5% initial conversion premium.

Pattern shares fell $2.04, or 8%, to $23.70 ahead of the pricing of the bonds expected after the market close.

Illumina Inc.’s convertibles fell on an outright basis and were flat to a little lower on a dollar-neutral, or hedged, basis after the San Diego-based developer of genetic research tools posted quarterly sales that missed estimates, pulling its common stock down as much as 13% before shares pared some losses to end lower by 8%.

Convertibles players watched the technology sector after Apple Inc. reported sales that didn’t match expectations. Among convertible technology names, NXP Semiconductors NV and Intel Corp. were in focus. The common shares of NXP were lower, but not much was happening in the bonds, a New York-based analyst said.

“NXPI stock was lower probably because of the Apple news,” the analyst said.

Meanwhile, Intel’s stock and convertibles were steady. “Intel reported last week and had weak guidance, and that stock has already given up quite a bit this year,” the analyst said.

Many U.S. convertible energy names continued to languish on Wednesday as oil prices slumped back below $50 per barrel.

“Energy has had a rough patch, and investors are hesitant to be in the sector,” the analyst said.

“Whoever owns these are not going to sell at this point,” the analyst said.

Whiting Petroleum Corp.’s 1.25% convertibles due 2020 were down another point, a New York-based trader said, with shares down nearly $1.00, or 4%, at $24.31.

Chesapeake Energy Corp.’s convertible bonds and preferred shares were lower on Wednesday.

The Chesapeake 2.25% convertibles have fallen to around 80 compared to 88 a month ago and 92 a month before that.

Chesapeake’s 5.75% convertible preferred stock fell into the 540 range from around 616, and a second Chesapeake 5.75% convertible preferred fell to 557 from 616, according to a market source.

Shares of the Oklahoma City-based oil and natural gas company were down 24 cents, or 2.6%, to $9.05, extending losses notched on Tuesday on word that the company is suspending its dividend to conserve cash.

On Wednesday, the U.S. Energy Information Administration said that U.S. commercial crude oil stockpiles rose contrary to expectations for a drawdown. The stockpiles increased by 2.5 million barrels to 463.9 million.

An analyst said that the energy sector worsened with lower oil prices and word that Iran could soon start pumping its oil into the global market after it struck an international accord on its nuclear program.

“High yield has also sold off in the energy space. But remember, convert investors are generalists and not pure energy experts. When energy gets this bad, they tend to concentrate their efforts elsewhere,” an analyst said.

Pattern looks cheap

The planned $225 million convertibles deal of Pattern Energy, a San Francisco-based independent power company, looked to be about 2.5 points cheap, using a credit spread of 375 bps over Libor and 28% vol.

Despite the weak energy sector, the new deal was expected to do OK “if it was priced appropriately,” a source said.

There was no gray market in the deal ahead of pricing.

Pattern is selling the convertibles via joint bookrunners BofA Merrill Lynch, BMO Capital Markets and Citigroup Global Markets Inc.

Pattern is also pricing up to $125 million of shares of its class A common stock, and the proceeds of both deals are earmarked to repay a portion of the outstanding debt incurred in connection with the company’s purchase of interests in the K2, Lost Creek and Post Rock wind projects, the acquisition of non-controlling interests in the Gulf Wind project and the prepayment of Gulf Wind project level debt and for general corporate purposes.

Illumina drops outright

Illumina’s 0% convertible notes due 2019 traded down to about 115 from 122, when the common shares were down 11%, according to Trace data.

The Illumina 0.5% convertible notes due 2021 traded down to 121 from 128 to 130.

The Illumina 0.5% convertibles contracted about 0.5 point on the day, a New York-based sellsider said.

But Illumina’s common shares ended off their lows, down only $20.05, or 8%, at $217.49.

Illumina’s older 0.25% convertibles were seen at 261 from 285 at the end of the day, a market source said.

An analyst noted that the stock has had a decent run and is up from about $25.00 at the end of 2012.

Relative to the rise, Wednesday’s drop was not that much, an analyst said. But if the momentum shifts suddenly there will be some sellers.

Illumina sales missed estimates for the first time since the third quarter of 2009.

Sales for the quarter were $539 million, which didn’t meet analysts’ estimates for revenue of $542 million average.

Excluding one-time items, earnings for the quarter were $120 million, or 80 cents per share, compared with earnings of $85 million, or 57 cents per share, for the year-earlier period.

Looking ahead, the company said it continues to project about 20% total revenue growth, including a 3% negative impact from foreign exchange assuming current currency exchange rates, for the full year. The company has increased its projections for non-GAAP earnings per diluted share to $3.39 to $3.45.

Mentioned in this article:

Chesapeake Energy Corp. NYSE: CHK

Illumina Inc. Nasdaq: ILMN

Intel Corp. Nasdaq: INTC

NXP Semiconductors NV Nasdaq: NXPI

Pattern Energy Group Inc. Nasdaq: PEGI

Whiting Petroleum Corp. NYSE: WLL

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.