Convertibles weighed down as energy retraces some gains; SunEdison up; CSG Systems on tap

By Rebecca Melvin

New York, March 8 – U.S. convertibles were generally heavier on Tuesday as energy names retraced some of their recent gains. The moves mirrored the broader markets’ drop in oil prices and lower equities, a New York-based trader said.

Oil prices, which were weak at the outset of market trading on Tuesday, strengthened by late morning but then sold off in afternoon action, leaving the price of West Texas intermediate crude for April delivery down $1.61, or 4.3%, at $36.29 per barrel.

Both the S&P 500 and Nasdaq stock markets were down more than 1% each, while the Dow Jones industrial average ended down 0.6%.

The convertibles market followed the broader trends. Chesapeake Energy Corp.’s 2.5% convertibles due 2037 retraced about 3 points of recent gains as shares dropped back 18%, following a string of double-digit gains.

Whiting Petroleum Corp.’s 1.25% convertibles also slipped a few points, and shares of the Denver-based energy exploration and production company were down 15%.

Meanwhile, SunEdison Inc. was a focus of convertibles players’ attention in the early going after news that Vivint Solar Inc. pulled out of a deal to be bought by the Maryland Heights, Mo.-based solar technology company. SunEdison shares popped dramatically on news that the controversial deal was scrapped but ended up only 5%.

The SunEdison convertibles were up about a point on average, with the bonds that priced in the middle of last year trading in the mid-teens, a New York-based trader said.

“They were slightly better across the whole complex, but nothing is really good for this company right now. A lawsuit may result from breach of contract with Vivint,” the trader said.

Meanwhile, market players gravitated toward the technology sector in the absence of positive energy moves, and there was good two-way flow in that sector. On Semiconductor Corp.’s 1% convertibles due 2020 traded fairly actively and slightly lower at around 88, against shares that were down around 2.75% at $8.70.

After the market close, CSG Systems International Inc. dipped its toe into the recently lifeless convertibles primary market and launched a $200 million offering of 20-year convertibles that was seen pricing after the market close on Wednesday.

Also in primary action internationally, French environmental services company Veolia Environnement SA launched and priced €700 million of 0% five-year convertible bonds in the Oceane structure at 102.75% of par and with a 47.5% premium above the company’s share reference price on Euronext Paris market.

Pricing of the Regulation S deal came at the midpoint of talk.

SunEdison improves

SunEdison’s 2.375% convertibles traded at 13, which was up 0.5 point on the day. But they were steady on where they had been trading a week ago before news that the company was delaying filing its annual report.

SunEdison’s 3.375% convertibles also traded at 13, which was up a point.

SunEdison’s 2% convertibles due 2018 traded up a point to 22.

SunEdison shares, which surged as much as 50% higher briefly intraday, closed up a dime, or 5%, to $2.00.

Vivint said it pulled out of the deal because SunEdison failed to meet obligations that would have completed the transaction. The deal plan was first announced last July.

Hedge fund manager David Tepper had objected to the deal as not in the best interest of SunEdison’s TerraForm Power subsidiary, in which Tepper is an investor. But there were other hindrances to the deal getting done, namely SunEdison’s already heavy debt burden after a string of prior acquisitions.

CSG Systems to price

CSG Systems plans to price $200 million of 20-year convertibles that were talked at a 4.125% to 4.5% coupon and a 40% to 42.5% initial conversion premium, according to market sources.

CSG, which provides business services to mostly communications companies, will use the proceeds to repay existing convertibles that mature in 2017.

The Englewood, Colo.-based company is selling the bonds privately under Rule 144A via joint bookrunners Stifel, Nicolaus & Co. Inc. and RBC Capital Markets LLC.

There is a $30 million greenshoe.

The 20-year notes are non-callable for four years and then provisionally callable for two years if the stock price exceeds 130% of the conversion price. After that the notes are freely callable. There are puts on March 15, 2022, March 15, 2026 and March 15, 2031.

There is standard takeover protection and dividend protection for dividends above $0.185 per share per quarter. The notes will be settled in cash, shares or a combination of cash and shares.

Up to $125 million of the proceeds will be used to repurchase a portion of CSG Systems’ existing 3% convertible senior notes due 2017 with remaining proceeds to be used for general corporate purposes.

Mentioned in this article:

Chesapeake Energy Corp. NYSE: CHK

CSG Systems International Inc. Nasdaq: CSGS

ON Semiconductor Corp. NYSE: ON

SunEdison Inc. Nasdaq: SUNE

Whiting Petroleum Corp. NYSE: WLL

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