Selling hits convertibles: new Illuminas slip on hedge; new SunPower, Trina better bid; new Laclede adds

By Rebecca Melvin

New York, June 6 – U.S. convertible saw $1.675 billion of new paper in the market on Friday, which turned some portfolio managers into sellers as the new product was absorbed.

“What we saw was selling to make room for the new paper. It was one off, pretty indiscriminate, but things were generally for sale, including a lot of tech stuff,” a New York-based trade said.

Illumina Inc.’s newly priced A and B tranches put in a fairly lackluster debut after the San Diego-based developer of genetic research tools priced an upsized $1 billion of the new paper at the rich end of talked terms.

The two Illumina issues were seen trading around par for much of the session, according to one market source. A second source said that there was more pressure on the B tranche, which has a 0.5% coupon and a longer maturity.

Illumina’s older 0.25% convertibles due 2016, which will be bought back with proceeds of the new deals, were not heard in trade. The deep in-the-money issue was reported at 189.5625 bid, 190.0615 offered versus an underlying share price of $155.00 at the end of April.

When the $920 million of the older Illumina was priced in 2011, the conversion price was set at $83.55.

SunPower Corp.’s new $400 million of 0.875% convertible senior debentures were seen at 102 bid with the company’s shares down about 1%, and the new Trina Solar Ltd. deal, bearing a 3.5% coupon, was at 103 bid with the shares little changed.

Trina’s concurrent stock offering, which set a reference price for the convertibles, was priced at a greater than 5% discount to the stock market close and helped boost the convert, a New York-based trader said.

Meanwhile, the Laclede Group Inc.’s new 6.75% mandatory convertibles traded up along with the underlying shares after the St. Louis-based utility priced $125 million of the units at the tight end and beyond the tight end of talk.

The stock reference price set in a concurrent offering came at a premium to the company’s June 5 market close.

But all in all, “it’s a good day for the convertibles community,” a trader said, indicating that convertibles investors were reaping profits from first-day trading.

SunEdison Inc.’s older 2% convertibles and 2.75% convertibles, which had held in or even expanded with a new SunEdison deal this week, were indicated weaker in the low 150s from the upper 150s to 160 previously. SunEdison shares lost 64 cents, or 3.2%, to $19.62.

New issues ‘turn up’

What caused the uptick in new issuance this week is anybody’s guess, one syndicate source said. “It is the luck of the draw. Markets have done pretty well lately, but who knows why they chose this week and not last week.”

“Weeks can go by without a deal, and then, all of a sudden, we have five deals,” the syndicate source said, noting that the convertibles market gets pretty reactionary about the new paper given its feast or famine quality.

“Our market, pre-2008 wasn’t that emotional,” he said. But back then, the pace of issuance was about double what it is now.

Why three solar companies came to market this week was also uncertain. “Maybe they were all talking with one another,” the syndicate source said.

“The BDC guys travel in packs and everyone talks shop,” he said, referring to the fact that the convertibles market saw a clump of issues from the business development sector recently as well.

Illumina slips on hedge

Illumina’s 0% A convertibles due 2019 were seen trading at 100.375 bid, 100.625 offered with the underlying shares up about $3.00 at $167.00ish. The Illumina 0.5% B convertibles due 2021 were also seen trading around par.

Illumina shares ended a little higher than that, or up by $4.86, or nearly 3%, at $168.95.

On a hedged basis, the A convertibles were said to have slipped 0.25 point and the B convertibles were seen having slipped about 0.5 point, a New York-based trader said.

“The stock bailed out the convert,” a second New York-based trader said at late morning. “With the stock unchanged, the convertibles were probably wrapped around par, and with the stock up here, the convert is par to 100.5, call it 100.375, 100.625.”

Illlumina’s lackluster debut was attributed to the pricing. The bonds priced at the rich end of talk, including at 55% initial conversion premium.

“I think guys were surprised by the 55% premium,” the trader said.

Illumina priced an upsized $1 billion of convertible senior notes in two tranches late Thursday, including an upsized $550 million of 0% five-year notes and $450 million of seven-year tranche priced to yield 0.5%.

The A tranche was increased by $100 million.

Pricing came at the rich end of talk, which was for a 0% to 0.5% coupon for the five-year notes and 0.5% to 1% for the seven-year notes with a 50% to 55% premium for both.

The five-year notes have an over-allotment option for $82.5 million of additional notes and the seven-year notes have an over-allotment for $67.5 million of additional notes.

The notes are non-callable with no puts and standard takeover and dividend protection features.

Goldman Sachs & Co. and BofA Merrill Lynch were joint bookrunners for the Rule 144A deal.

Proceeds will be used to repurchase or repay a portion of Illumina’s 0.25% convertibles due 2016. Remaining proceeds will be for general corporate proceeds.

Laclede trades up

Laclede’s new 6.75% mandatories were quoted $51.50 bid, $51.75 offered versus the closing share price of $46.93, according to a syndicate source.

Shares were down 26 cents, or 0.6%.

“They traded up,” a syndicate source said of the mandatories, which have a $50 par.

Laclede priced $125 million of the equity units at the tight end of coupon talk and beyond the tight end of premium talk. The bond’s priced with an initial conversion premium of 25%.

Laclede also priced 9 million shares of common stock at $46.25 per share for $416.15 million of proceeds.

Proceeds from both offerings will be used to fund a portion of the cash consideration payable in connection with the pending acquisition of Alabama Gas Corp.

Credit Suisse, Wells Fargo Securities, J.P. Morgan Securities LLC and RBC Capital Markets are lead book-running managers for the units.

Mentioned in this article:

Illumina Inc. Nasdaq: ILMN

The Laclede Group Inc. NYSE: LG

SunEdison Inc. Nasdaq: SUNE

SunPower Corp. Nasdaq: SPWR

Trina Solar Ltd. NYSE: TSL

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