Cypress Semi higher on tender offer; SunPower quiet; ON Semi, Intel in trade; RadioShack sees gains

By Rebecca Melvin

New York, Aug. 15 - Cypress Semiconductor Corp. moved higher Friday after the semiconductor manufacturer announced that it had begun a tender offer for up to all $600 million of its outstanding 1% convertible senior notes due Sept. 15, 2009, market sources said.

Cypress subsidiary SunPower Corp. was also in the news after Pacific Gas and Electric Co. said it had selected the designer and maker of solar electric systems for one of two large solar power plants to be built in California.

SunPower's two convertible bond issues were not seen in trade but were indicated higher, according to sources.

Convertibles players also traded other semiconductor names, including ON Semiconductor Corp., which was higher on a dollar-neutral basis, although its underlying shares were lower; and Intel Corp., which traded little changed from previous markets.

Meanwhile, RadioShack Corp., which priced $325 million of 2.5% convertibles this week, gained ground as its stock recovered from the hit it took in relation to the bond offering and the bonds passed the 102 level.

Otherwise, the market was very slow, sources said.

Convertible bond prices have suffered in recent months, and they continue to cheapen, said Odell Lambroza, co-manager of a new Advent Capital strategy aimed at being free to invest in assets other than convertible bonds.

"We're getting to as cheap as we've been in a long time [in convertibles] due to the forced selling from the world delevering," Lambroza said.

Nevertheless there are opportunities to exploit from such short-term price dislocations and volatility, and if convertibles are part of the capital structure of a company with the kind of fundamentals that the strategy is looking for, then they will be welcomed, Lambroza said.

Another source noted that the unwinding of commodities in recent weeks has actually rebalanced some existing convertibles, creating appealing "asymmetry."

Cypress edges up in active trade

Cypress' 1% convertibles due September 2009 traded at 135 versus a closing share price of $30.67 Friday. That compared to about 124 versus a closing share price of $27.16 on Thursday.

Probably the biggest news of the day was the Cypress tender offer, a West Coast-based trader said. The news came late Thursday after the market close.

The tender offer is based on a volume weighted average price of the Cypress stock for 10 days from Aug. 27 to Sept. 10.

The 1% convertibles traded at a slight discount to tender offer early in the session, but later were at a slight premium, the trader said.

Shares of San Jose, Calif.-based Cypress (NYSE: CY) jumped $3.51, or 13%, to $30.67.

SunPower inks utility deal

Also on Friday SunPower signed a deal with PG&E to build a solar farm, and its shares (Nasdaq: SPWR) surged 18% in heavy trading volume.

"The borrow is crappy, so I don't deal in the converts," a trader said Friday, but he said he hadn't "seen" either the SunPower 1.25% convertibles or the SunPower 0.75% convertibles in trade.

The SunPower 1.25% convertibles due 2027 became convertible June 30 and remain convertible through Sept. 28 because the company's stock traded at 125% of the conversion price for at least 20 out of 30 consecutive days during the quarter ended June 29.

The SunPower 1.25s were indicated at 177 versus a closing share price of $92.52 on Friday, compared with 153 versus a closing share price of $78.57 on Thursday.

SunPower's 0.75% convertibles due 2027 were indicated at 129, compared to 114.5 on Thursday.

PG&E signed a contract for 250 megawatts of high-efficiency PV solar power from SunPower. It also inked a second contract with OptiSolar Inc. for 550 megawatts of thin-film PV solar power.

The 800 megawatts total is equivalent to the amount of energy needed to serve about 239,000 homes each year.

ON Semi, Intel in trade

A recent rebound in the technology sector has helped strengthen the semiconductor space in recent trading. But on Friday ahead of the weekend some profits were taken, leaving shares slightly lower.

ON Semiconductor's 2.875% convertibles traded Friday at 118 versus a share price of $10.25, which was on the offer end of the previous market, one trader said. "I own them, so now I can mark them up."

Shares of Phoenix-based ON Semi closed down 14 cents, or 1.3%, at $10.42.

Meanwhile, Intel's 2.95% convertibles due 2035 traded at 102.25 versus a share price of $24.25, which was little changed to slightly higher compared with the previous market.

Shares of Santa Clara, Calif.-based Intel (Nasdaq: INTC) closed at almost the same level, retracing a earlier climb, to end off just 10 cents, or 0.41%.

RadioShack extends gains

RadioShack's new 2.5% convertibles traded at 102 versus a share price of $17.80, compared to 101 versus a share price of $17.90 on Thursday.

Shares of the Fort Worth, Texas-based electronics retailer (NYSE: RSH) closed Friday well up from the level of Friday's trade at $18.47, up 66 cents, or nearly 4%, and the 2.5s were indicated to close at nearly 103.

"I like the structure of RadioShack. The five-year bullet and no call provision are easy to model," a New York-based buysider said.

Another source noted that the share price now exceeded where it was when the bonds were priced, which was favorable.

RadioShack priced an upsized $325 million of five-year convertible senior notes after the close Tuesday to yield 2.5% with a 32.5% initial conversion premium.

The deal was increased from an initially talked $300 million and came at the rich end of talk, which was for a yield of 2.5% to 3% and a conversion premium of 27.5% to 32.5%.

The Rule 144A deal was brought to market via joint bookrunners Citigroup and Banc of America Securities LLC and co-managers Merrill Lynch, Wachovia and Wells Fargo.

There is a $50 million over-allotment option.

Subject to a contingent conversion provision, the conversion ratio is 41.2414 and the conversion price $24.25.

Settlement is scheduled for Aug. 18.

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