Convertibles mostly soften; Clearwire down; China Sunergy offered at 52; KV Pharma active

By Rebecca Melvin

New York, June 17 - The convertible bond market was generally softer through much of the past week, and Friday was no exception. But in many instances, trading in specific names was marked by some ticks higher and some lower to get to the mostly unchanged level.

Clearwire Corp. was down Friday and for the week amid a general contracting of yield names, a New York-based trader said. Nevertheless, the Clearwire convertibles were still considered a little rich given where the straight debt was trading, a second New York trader said.

China Sunergy Co. Ltd. was offered at 52 with no trades after the China-based solar company on Friday cut its guidance for the second quarter and 2011 full year. A week ago, China Sunergy traded at 50.

KV Pharmaceutical Co.'s convertibles bounced 2 or 3 points to 52ish Friday after a slide Thursday from 61.

The Bridgeton, Mo.-based specialty pharmaceutical company Friday said it has agreed to sell its generic drug business to Zyndus Pharmaceuticals, a subsidiary of India-based drugmaker Cadila Healthcare, for $60 million in cash.

The week brought some winners on a dollar-neutral basis among insurers and financial-oriented issuers.

Philadelphia-based mortgage insurer Radian Group Inc. saw its 3% convertibles gain 2.3% to 70.25 for the week. MGIC Investment Corp. saw its 5% convertibles and 9% convertibles gain 2% to 91.65 and 0.8% to 86.21, respectively, on a dollar-neutral basis; and PMI Group Inc.'s 4.5% convertibles added 1.9% to 54.50, according to Citigroup convertibles sales and trading desk.

Both Ares Capital Corp. convertibles were in the gainers group, as well. The Ares 5.125% convertibles traded at 101.5 versus a share price of $16.05 on Friday, having added more than 1.1% for the week, according to a New York-based sellside trader.

Clearwire keeps falling

Clearwire's 8.25% convertibles due 2040 traded down to 88.75 versus an underlying share price of $3.60 on Friday, compared to 92 versus a share price of $3.80 on Monday.

"The high-yield market has been coming in for a couple of weeks; it just seems that converts have lagged behind them," a trader said.

In addition, the Clearwire convertibles have a very high conversion ratio of 141.2429, so even a small move in the stock will move the bonds a lot, an analyst said.

Shares of the Kirkland, Wash.-based mobile broadband network operator have been languishing near their 52-week lows. They settled Friday at $3.60, which was well off the lows of the day, but down 20 cents, or 5.3%. The stock is down nearly 10% from a week ago when they settled at $3.99.

A second trader said Clearwire still "looks a little rich to me given what's happened to the straights."

He pointed out that Clearwire's 12% bonds due 2015 were off 5 points from the peak and they continue to be for sale, so as far as the Clearwire convertibles were concerned, "I would have suggested 86-87 versus $3.60."

Clearwire has been facing a cash crunch and management turmoil in recent months and has been slower than rivals to deploy the next generation wireless network known as 4G technology. Its land-based network is based largely on the WiMAX standard. Meanwhile, competitors like AT&T with economies of scale are rolling out 4G.

China Sunergy wavers

China Sunergy's 4.75% convertibles were offered for sale at 52 on Friday but didn't trade, sources said. The convertibles - a small $50 million deal that was issued in June 2008 - traded last week at 50.

Shares of the Nanjing, China-based company fell 21 cents, or 12%, to $1.60 on Friday.

The paper is well out of the money given that it has a conversion price of $12.30.

"CSUN is at that perfect inflection point, either 50 points too high or 50 points too low," a New York-based sellside trader said.

China Sunergy said that it now sees second-quarter solar module shipments of 100 megawatts to 110 MW, down from previous guidance of 120 MW to 130 MW.

China Sunergy said the reduction reflects delays in approval of project loans to some customers in Europe.

For the full year, the company now sees shipments of 580 MW to 600 MW, which was down from the previous forecast of 670 MW to 690 MW.

The decline reflects the company's view that financing delays are becoming more common and may even result in some order cancellations.

For the second quarter, the company now sees gross margin of about 1%, down from previous guidance of 7.5% to 8.5%; the company sees gross margins on in-house module production of 4%, down from the 12% to 13% range.

The company said the lower margin guidance reflects a number of short-term factors, including a higher proportion of higher-cost inventory in projected second-quarter shipments, an increase in non-silicon costs due to an increase in the cost of silver paste and a faster-than-expected drop in solar module average selling price.

KV Pharma bounces slightly

KV Pharma's 2.5% convertibles due 2033 traded at 50.5 bid, 52.5 offered in afternoon trading, compared to 48 bid, 49 offered on Thursday, a level to which it fell from 61.

The KV straight bonds were up 3 points as well, a New York-based trader noted.

The convertibles weren't seen to trade that much and when they do trade they're outright, an analyst said.

Shares traded up on Friday to $2.60, up 22 cents, or 9%.

KV Pharma said the decision to diverst Nesher Pharmaceuticals Inc. to Zyndus was in line with its strategy to focus on women's health.

Jefferies & Co. acted as financial adviser to KV Pharma for the deal, which is expected to close in the second quarter of KV's 2012 fiscal year.

Mentioned in this article:

Ares Capital Corp. Nasdaq: ARCC

China Sunergy Co. Ltd. Nasdaq: CSUN

Clearwire Corp. Nasdaq: CLWR

KV Pharmaceutical Co. NYSE: KV

MGIC Investment Corp. NYSE: MTG

PMI Group Inc. NYSE: PMI

Radian Group Inc. NYSE: RDN

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