RF Micro Devices quick-sale $200 million convertible talked to yield 1.0-1.5%, up 42.5-47.5%

By Ronda Fears

Nashville, June 25 - RF Micro Devices Inc. launched a quick-sale $200 million of seven-year convertibles talked to yield 1.0% to 1.5% with a 42.5% to 47.5% initial conversion premium and news of the new deal sent its existing converts shooting up around 4 points on speculation of a call or buybacks.

Officially, the company, which makes circuits for wireless communications products, said proceeds would be used for working capital and general corporate purposes, including to possibly retire long-term debt.

But the RF Micro Devices 3.75% convertible due 2005 rallied immediately on news of the new deal - which launched before the open Wednesday with pricing slated for after the close - in anticipation of a call exercise or open-market buybacks by the company.

The 3.75s gained more than 4 points to 99.5 bid, 100 offered, traders said, for a yield-to-call of 13.68%.

The issue is callable Aug. 20 at 100.9375.

RF Micro Devices shares closed down 48c, or 7.67%, to $5.78.

Valuations on the new deal varied considerably, in part due to what one market source described at an artificially tightened option-adjusted spread on the 3.75s due to the run-up in anticipation of a call.

Deutsche Bank Securities analysts put the new deal 3.8% cheap, using a credit spread of 350 basis points over Libor and a 55% stock volatility, citing the OAS spread on the 3.75s at 350 bps.

Lehman Brothers, however, was using a credit spread of 650 bps over Treasuries and a 60% stock volatility to put it 1.77% rich.

Another convertible analyst put it 3% rich using a credit spread of 600 bps over Treasuries and a 55% stock volatility.

The new RF Micro Devices convert will be a subordinated note, non-callable for five years.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.