Morning Commentary: New Trina trades a little above par despite weaker shares; Red Hat in focus

By Rebecca Melvin

New York, Oct. 1 – Trina Solar Ltd.’s new 4% convertibles due 2019 traded early Wednesday at 100.375 against weaker shares but was also seen at 100 bid, market sources said, after the solar power company priced $100 million of the senior notes at the cheap end of talk.

“The last trade print was a dealer getting hit at 100.375,” a trader said.

Trina shares were down 42 cents, or 3.5%, at $11.65 in the early going, which was on top of a 6% drop on Tuesday.

While the Trina deal was seen as a credit of Libor plus 1,000 basis points, another deal at the other end of the spectrum was also in the market: Red Hat Inc. launched an offering of $700 million of five-year convertible senior notes late Tuesday. That deal was being valued with a credit spread of 100 bps over Libor.

At that spread and 25% vol., the deal looked a couple points rich, sources said. But it was still expected to do well in the market because the Raleigh, N.C.-based open-source software provider is considered an investment-grade credit.

Red Hat’s offering is being sold via bookrunners Morgan Stanley & Co. LLC, BofA Merrill Lynch, Citigroup Global Markets Inc., J.P. Morgan Securities LLC, Barclays, Goldman Sachs & Co., RBC Capital Markets LLC and Wells Fargo Securities LLC.

Looking back at the last quarter, convertibles were weaker for some time amid a combination of factors including a stronger primary market, few large maturities and the reverberations over rates and selling in the high-yield market, a convertibles trading source said.

“The market has been so weak. There were not a lot of bonds going away for the last two months and high yield was weak,” the trading source said.

“Nobody in risk arb has made any money, and they are going to have to be more aggressive in the last quarter,” he said.

According to the convertible arbitrage index of Hedge Fund Research, the strategy made 0.04% for September, but for the year to date, the strategy is down 0.42%, after being up 10.4% last year.

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