Chesapeake prices add-on; AMD convertibles land quietly; Intel active; convertibles market takes cover

By Evan Weinberger

New York, Aug. 9 - Two issues, a new convertible senior note offering from Advanced Micro Devices, Inc. and an addition to an existing Chesapeake Energy Corp. note issue, were the highlights of a down day in the convertibles market Thursday.

Although activity slowed as equity markets tumbled, traders and analysts all said that they saw most convertibles bid lower over the course of the day, although they differed on the extent of the lowering.

"Half the names on my screen are down 4% to 5%," one buyside fund manager said.

A sellside trader disputed only the extent to which convertibles he saw were down. "Everything's getting worse," he said. "I'm just not sure 4 points worse."

One active name in the secondary market was Intel Corp.'s 2.95% junior subordinated debentures due Dec. 15, 2035. The debentures closed at 98.13 on Thursday versus a closing stock price of $23.92. The debentures were down more than 4 points before rallying Thursday. They closed at 99.625 versus a $24.68 stock price on Wednesday.

The Santa Clara, Calif.-based semiconductor maker saw its stock give back 76 cents, or 3.08%, on Thursday.

That stock wasn't the only big loser Thursday, as the equity markets opened lower and just kept falling. News that French bank BNP Paribas suspended three funds invested in the U.S. subprime mortgage market because they couldn't put an accurate value on them combined with cash infusions from the European Central Bank and the Federal Reserve frightened already jumpy investors Thursday morning. They stayed frightened, with news reports of steep losses in two Goldman Sachs hedge funds, among others, reconfirming those fears.

The Dow Jones Industrial Average plunged 387.18 points, or 2.83%, to close at 13,270.68.

The Nasdaq was almost equally dismal Thursday. The tech-heavy index lost 56.49 points, or 2.16%, closing at 2,556.49.

Strategies for thriving while markets are at best wildly mixed all centered on finding good-credit companies with convertibles either close to maturity or with near-term puts.

"Overall, I'd say things are definitely moving down. Things that are already trading close to par and are short-dated are holding up," a sellside analyst said.

Other investors might choose to take on a bit more risk than that, according to another analyst. "If stuff is real distressed, there may be some investors who nibble, if capital is not an issue," he said.

Two new issues chose a tough day to hit the street Thursday. Chesapeake Energy Corp. priced the $500 million addition to its 2.5% contingent convertible senior notes due May 15, 2037. The notes came in priced slightly higher than talk, at 97.625. Talk had them at 97.

They have the same structure as the previous convertibles issue, which priced May 10, with a 125% contingent conversion and a 120% contingent payment until May 15, 2035. The notes are callable beginning May 15 2017 and have put options on May 15 in each of 2017, 2022, 2027 and 2032.

But the lower strike price of $51.89 is a penny lower than the previous issue's strike price. And the conversion ratio is a bit higher on the new notes, at 19.3868. The original issue had a conversion ratio of 19.3855. The initial conversion premium for the new issue is 46.34%.

The two issues trade under different CUSIPs.

Also new to the market Thursday are $1.5 billion in 5.75% convertible senior notes due Aug. 15, 2012 from Advanced Micro Devices. The notes have an initial conversion premium of 50%.

Neither of the new issues saw much action Thursday. "I didn't see either of them trade today at all," a trader said.

Chesapeake floats an addition

Chesapeake Energy, an Oklahoma City-based oil and natural gas exploration and drilling company, priced the addition to its 2.5% contingent convertible senior notes Wednesday after market close. Priced at 97.625, they didn't move much at all, according to sources.

In fact, there were no reports on bids or asks for the convertibles.

"We didn't look too closely, because we already had our fill of Chesapeake paper," a fund manager said. "It just seems like one Chesapeake too many."

A sellside analyst added: "If you wanted to buy these last week, you could've bought them."

The $500 million in new contingent convertibles, which comes with a $75 million greenshoe, come on top of a May 10 offering of $1.15 billion of 2.5% contingent convertibles due May 15, 2037.

The purpose of the convertibles is to pay off debt in an existing credit facility, a plan at least one sellside analyst thought was worthwhile.

"From a credit standpoint, it just totally makes sense," a sellside analyst said. "Why not replace 6.7% debt with 2.5% debt that you may not have to pay back."

The analyst said that the previously issued convertibles had been trading at around the price of Thursday's addition, hovering around 97.

The original issue of Chesapeake 2.5% contingent convertibles closed Thursday at 97.19 versus a closing stock price of $33.77.

They closed Wednesday at 103.57 versus a closing stock price of $35.43.

Chesapeake stock (NYSE: CHK) joined the downward trend, losing $1.66, or 4.69% on Thursday.

AMD arrives and sits

Opinions were pretty much uniform on the new Advanced Micro Devices $1.5 billion 5.75% convertible senior notes due Aug. 15, 2012. There is an additional $225 million greenshoe.

"Who would buy a CCC credit with a 50% premium in this market environment?" asked one analyst.

After a late-night announcement of the new convertibles Wednesday night, they priced early Thursday morning, before market open. They were never heard from again.

"I think in a case like that, when it's a total drive-by, it indicates that it's a bought deal," another analyst said.

Lehman Brothers is the bookrunner on the deal.

Fitch Ratings gave the convertibles a CCC+/RR6 rating and said the private placement would "moderately help" the company's financing situation.

Proceeds from the convertibles are meant to repay the outstanding balance of the term loan AMD entered into with Morgan Stanley Senior Funding, Inc. in October 2006.

The Sunnyvale, Calif.-based semiconductor producer saw its stock (NYSE: AMD) tumble 34 cents, or 2.53%, to close at $13.08 Thursday.

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