UBS launches new notes exchangeable for GT Solar; UAL active; international deals launch

By Rebecca Melvin

New York, Sept. 7 - The convertible bond market Tuesday began the holiday-shortened week with a new deal from UBS AG exchangeable into GT Solar International Inc., and syndicate sources said that there should be more new issuance coming in the next few weeks provided that markets remain fairly strong.

U.S. markets were closed Monday for Labor Day.

"Most dealers have things in the pipeline, and the demand is there, so we should start to see pricing over the next few weeks provided the tape holds up," a New York-based syndicate source said.

But nervousness is a factor, with investors uncertain about where the economy and markets are heading this fall, and on Tuesday U.S. stocks fell in light volume amid renewed concerns about the health of European banks. The losses followed on the heels of strong gains last week.

Internationally, the primary convertible market was busier than it had been most of the summer with Artemis SA of France launching an up to €690 million offering of six-year notes exchangeable into shares of PPR SA, and Japan's Unicharm Corp. launching ¥70 billion of 0% convertibles in two tranches.

Last week, Japan's Nidec Corp. priced ¥80 billion of 0% five-year convertibles.

"The market is wide open," a London-based syndicate source said. "In Europe, you had a halt between May and August because of the sovereign debt crisis. But markets are back. There is strength in the credit markets and in the equity-linked primary market. You see a deal today in Europe and also in Japan."

Secondary activity muted

Back in the U.S. secondary market, action may have picked up from last week's sleepy volumes, but not by much.

"It was busier than last week, but not really busy," a New York-based sellside desk analyst said.

Another sellsider said the market was "quiet today. It was busier last week."

Continued light volumes are to be expected given that Monday was Labor Day and Thursday is the Rosh Hashana holiday, traders said. Full swing isn't anticipated until next Monday.

UAL Corp. was among the day's notable names, with the UAL 6% convertibles due 2029 trading actively at near triple par, giving rise to speculation that the company could try to exchange these bonds soon.

Other deep in the money, low-premium names were also attracting interest, a New York-based sellside trader said. But he declined to name particular issues he had in mind.

SanDisk Corp., one of last week's most active names, was busy again. Its newer 1.5% convertibles traded flattish, with one sellsider citing a trade at 94.5 versus a share price of $37.00.

GT Solar mandatories eyed

UBS is offering about $130 million of three-year mandatory notes that will be exchangeable into shares of GT Solar. The deal was talked for a dividend of 6.25% to 6.75% and an initial premium of 20% to 25%.

Investors will be evaluating the deal in terms of GT Solar and its prospects.

Shares of GT Solar fell $1.02, or 11.6%, to $7.76 in heavy volume.

"UBS is fairly irrelevant since UBS is unlikely to go bankrupt and investors will focus on the deal from the Solar perspective," a New York-based sellside trader said.

A second trader agreed that GT Solar was going to be the focus given the paper's mandatory structure.

In addition, exchangeables are fairly common, he said. But this deal is unusual because usually the issuers will have held stock in the other company for awhile, whereas in this case, UBS is being sold stock coinciding with the deal.

"Generally the issuer has held the stock for awhile and is monetizing it," the trader said.

Concurrently with the mandatory deal, GT Solar plans to offer 10 million shares of common stock by one selling stockholder, GT Solar Holdings, LLC, under a shelf registration statement. A further up to 15 million will be sold to UBS Securities LLC and affiliates in connection with the mandatory offering.

UBS Securities is the bookrunner for the mandatory notes, and UBS, Credit Suisse Securities (USA) LLC and Bank of America Merrill Lynch are the joint bookrunners for the common stock offering, with Stifel Nicolaus Weisel acting as the lead manager.

The exchangeable notes are senior unsecured debt obligations of UBS AG. With a par price of $25 per note, the mandatories will be exchangeable for a maximum of 16.3 million shares, according to the prospectus.

Proceeds from the mandatories will be used by UBS to finance the forward sale of shares, to provide additional funds for its operations and for general corporate purposes outside Switzerland.

GT Solar is a Merrimack, N.H.-based designer and manufacturer of manufacturing equipment and a provider of services for the production of photovoltaic, wafers, cells and modules, and polysilicon.

UAL steady in active trade

UAL's 6% convertibles due 2029 traded at 273.5 versus a share price of $22.50, a level that was about flat to where the issue has been recently, a sellsider said.

Shares of the Chicago-based carrier ended down 23 cents, or 1%, at $22.27 in light trade on Tuesday.

"It's another low-premium trade that some people think the company will try to flush out or exchange," the sellsider said.

"All I can tell you is that we were active in a couple of deep-in-the-money, low-premium names," he said, adding that these names have gained interest as people look toward the fall with some amount of nervousness as to which direction markets are heading.

"These are trades that will work out in a down market," he said.

Mentioned in this article:

GT Solar International Inc. Nasdaq: SOLR

PPR SA France: PP

SanDisk Corp. Nasdaq: SNDK

UAL Corp. Nasdaq: UAUA

UBS AG NYSE: UBS

Unicharm Corp. Tokyo: 8113

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