New SunEdison convertible preferreds jump; older tranches mixed; Whiting Petroleum slips

By Rebecca Melvin

New York, Aug. 18 – SunEdison Inc.’s newly priced 6.75% perpetual convertible preferreds traded up as much as 5 points on a hedged basis on Tuesday after the St. Peters, Mo.-based solar technology company priced an upsized $650 million of the stock at the rich end of talked terms, market sources said.

The new SunEdison 6.75% preferred was quoted 104.375 bid, 105.125 offered versus an underlying share price of $14.68. That level was up more than 4 points on a swap basis, a Connecticut-based trader said.

The newest convertible joined three other SunEdison tranches that priced earlier this year, and then a few older issues as well.

But despite the large amount of SunEdison paper in the convertible space, this new issue did extremely well and the older paper was mixed in trade, with the most recent new issues, or the E and F tranches that priced in May, also improving on a swap basis.

The newest SunEdison was a pre-marketed, or over-the-wall, deal, which means that before widespread marketing, the deal was marked to select investors on a confidential basis, and after anchor investors were obtained the bookrunners launched the public selling process.

Why the deal was so warmly received by investors was probably due to a combination of factors, including the fact that it was an over-the-wall deal, it was a preferred stock, which appeals to a different set of investors – encouraging more investors, and the fact that it was seen as cheap.

“It’s cheap; it has a big coupon,” a New York-based trader said.

Away from the SunEdison new deal and its older issues, the convertibles market was fairly quiet.

Whiting Petroleum Corp. was lower by about 0.375 point on a dollar-neutral, or swap, basis and was quoted at 85 bid to 85.25 versus an underlying share price of $19.00.

The Whiting “bonds are in about 0.375 point. They seem to be catching up with weakness in energy credits,” a New York-based trader said.

There was also some Priceline Group Inc. and Micron Technology Inc. paper in trade. Priceline’s 0.9% convertibles due 2021 were seen changing hands at 99.55, which was off 0.1 point on the previous level. Priceline shares were off 1%. And Micron’s 3% convertibles were off about 0.5 point to 89 and change, with the underlying shares of the chip company down 5% at $16.38.

After the market close, Chinese internet company SINA Corp. reported quarterly results that were better than expected, and the common shares were modestly higher in after-hours action.

SunEdison bursts higher

But SunEdison was the undisputed name of the day. It’s new 6.75% perpetual convertible preferred shares traded up to about 105 with the underlying shares about unchanged at the time.

“The new preferred is now the cheapest preferred in the market; so, everyone wants to own it,” a New York-based trader said.

Later the SunEdison shares turned negative, and they closed down 18 cents, or 1.2%, at $14.50.

Buoying the shares on Monday was news that the solar technology company is forming a $1 billion investment vehicle with a Goldman Sachs Group-managed fund, West Street Infrastructure Partners III, under which the WSIP will provide $300 million equity and a group of banks will supply $700 million in debt.

These banks were involved in the convertible preferred stock deal.

Joint bookrunners of the registered, off-the-shelf convertibles were Goldman Sachs & Co., BofA Merrill Lynch, Deutsche Bank Securities Inc., Morgan Stanley & Co. LLC, J.P. Morgan Securities LLC and Macquarie Capital (USA) Inc.

The convertibles deal was upsized to $650 million from $500 million, and the perpetual convertible preferred shares priced on the rich end of talked terms, which was for a 6.75% to 7.25% dividend and 15% to 20% initial conversion premium.

“It did really well,” a trader said of the new deal.

It has a big coupon, a different investor base and a few anchor allocations, the trader said.

The stock is non-callable until Sept. 6, 2020 and then provisionally callable if the company’s shares exceed 130% of the conversion price.

The company plans to use the proceeds for general corporate purposes, including funding working capital and growth initiatives.

SunEdison was last in the convertibles market with a deal in May when it priced a dual-tranche offering of convertible bonds for $900 million. It also tapped the convertibles market in January for $400 million of convertible notes.

Existing SunEdisons mixed

There were no fewer than five SunEdison issues trading actively in the convertibles secondary market on Tuesday, and most of the issues were better on swap, but some were a little lower.

The company has tapped the convertibles market two other times since the beginning of the year, with a dual-tranche deal for $900 million in May and a $400 million deal of convertible notes priced in January.

The most recently priced issues, the E and F tranches that priced in May, were up on a swap basis.

The SunEdison 2.625% convertible due 2023, or the E tranche, was seen trading at 70.4, which was up about 0.9 point on an outright basis and up 1.375 point on a dollar-neutral, or hedged, basis, a trader said.

The SunEdison 3.375% convertibles due 2025 traded at 70.6, or up 0.5 point on an outright basis, and were also seen up on a dollar-neutral basis.

“The longer-dated bonds are seeing distressed guys come in and start to buy them,” the New York-based trader said.

The SunEdison 2% convertibles, or the A tranche, traded at 120, and the SunEdison 2.75% convertibles due 2021, or the B tranche, traded at 118.125. That pricing was down on a swap basis by about 0.5 point and 0.875 point, respectively.

Meanwhile the SunEdison 0.25% convertibles, or the C tranche traded at almost 80, which was down about 0.3 point on an outright basis but better by about 0.125 point on a swap basis. And the SunEdison 2.375% convertibles due 2022, or the D tranche, which priced in January, traded at 85. That was also up just slightly on a swap basis, the trader said.

The SunEdison common shares were off a little more than 1% at $14.40 last.

Mentioned in this article:

Micron Technology Inc. NYSE: MU

Priceline Group Inc. Nasdaq: PCLN

SINA Corp. Nasdaq: SINA

SunEdison Inc. Nasdaq: SUNE

Whiting Petroleum Corp. NYSE: WLL

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