New Intel edges up on debut; Citi recoups, Wells Fargo higher as shares down; Spansion jumps

By Rebecca Melvin

New York, July 22 - Intel Corp.'s newly-priced 3.25% convertibles expanded by about 0.4 point upon release to the secondary market Wednesday to settle at 101.25 versus the closing stock price of $19.14, according to a syndicate source.

"For a company like Intel, which didn't want to leave anything on the table, it was just about perfect," the syndicate source said.

Overall the market remained pretty active for a summer Wednesday, and it was called "better to buy," by a West Coast-based convertibles analyst.

Citigroup Inc. was lower in active trade early in the session, but recouped its losses by day's end ahead of its Friday tender.

Wells Fargo & Co.'s convertible preferred shares were stronger despite a decline in its shares after the San Francisco-based banking services company posted second-quarter earnings that beat estimates, but disappointed investors due to evidence of credit quality deterioration during the quarter.

Nonperforming assets totaled $18.34 billion, up from $12.61 billion in the previous quarter.

"Nonperforming assets went from 12.6 to 18. That's a big percentage move, and that bothered people, but they beat their number," a New York-based buyside analyst said.

Overall the convertible bank preferreds looked a little better by the end of the day.

Meanwhile, Alliance Data Systems Corp. was getting a look after the close when the Dallas-based marketing services company posted a drop in quarterly profit.

Advanced Micro Devices Inc., which has been active in recent sessions, was lower with its shares down 12% after the chip maker reported a second quarter loss that exceeded forecasts late Tuesday.

Spansion Inc., which filed for bankruptcy protection in March, doubled in trade on Wednesday, amid no particular news, but significant buying interest, according to a market source.

Intel edges up on debut

The newly priced Intel 3.25% convertible due 2039 traded at 101.25 versus a share price of $19.05, intraday, and settled at that level versus the stock close which was $19.14, up about 1.5% on the day.

The Santa Clara, Calif., chip giant priced an upsized $1.75 billion of 30-year convertibles at the midpoint of talk, via Credit Suisse and JP Morgan as joint bookrunners.

According to a syndicate source, the offering was the largest tech global offering since 2007. Advanced Micro Devices Inc. priced $2 billion of convertibles in April 2007, the source said.

The new Intel paper traded in large lots, but not overly large volume as many investors granted allocations wanted to hold the paper.

The new convertibles, which were at 0.125 point below par to 0.375 point above par in the gray ahead of pricing Tuesday, are very vol sensitive, a Connecticut-based sellside analyst said.

The sellsider had called the paper 1.4% cheap ahead of pricing using a credit spread of 150 basis points over Treasuries and a vol. of 38.

He said a case could be made for a vol. anywhere from 25 to 40. "If you settled on 35 vol., the valuation would be 0.5% rich," the analyst said.

"I didn't spend much time on it, but we liked the new deal better than the existing convertibles," the sellsider said.

Intel's existing 2.95% convertibles due 2035 traded at 86.5, according to Trace data, which was down another point from Tuesday, when the paper contracted 2.5 points to 3.5 points.

Citigroup recoups, Wells Fargo higher

Citigroup's 6.5% perpetual non-cumulative convertible preferred stock came back at the end of the day to close at about 30. Earlier it was down to 27.5.

Initially the Citigroup I preferred traded at 18.8, said a sellsider, who said he had been encouraging buyers in the paper. It's "likely the exchange offer is extended."

A buysider disagreed that Citigroup was likely to change the timing.

"They just said on an earnings call that the timeframe was unchanged. Our traders think it's [down] because yesterday was the last day to participate in the exchange," the buysider said regarding the dip in pricing.

If you bought the Citi today, you wouldn't be able to participate in the exchange ratio. And the dividend goes away. So if you owned it, and the dividend was going away, you might as well tender," the buysider said.

The exchange expires Friday. .

Meanwhile, Wells Fargo's 7.5% convertible preferred shares settled at about 800, which was up 6% from Tuesday.

Wells Fargo shares lost $0.90, or 3.6%, to $24.45.

The bank had record results but elevated credit issues and there seemed to be profit taking on the news.

"I'm thinking it was an unremarkable quarter, and it struck me as what you might expect," a buysider said, adding later "it was hard to infer anything from market action today."

Credit deteriorated, but the bank was profitable and is trading at ten times run rate earnings, the buysider noted.

"Optically, non-performing assets increased so much because of the merger integration with Wachovia. They said that they were repopulating the non-performing assets, whatever that means. Wachovia was brought on with a severely marked down book," the buysider said.

"They have enough capital to get through the cycle, the marginal fear is that banks are going to have to raise more capital," the buysider said.

Bank of America's convertible preferred shares were also up, settling at about 794.

Spansion expands

Spansion's 2.25% 2.25 exchangeable senior debentures due 2016 settled Wednesday at 7.75 bid, 8.75 offered, after trading at around 4.5 on Tuesday and 3.5 on on Monday.

They were "up a ton," a convertibles analyst said. "We started looking at these things at 3, coming up with a value, and we thought they were cheap."

The analyst couldn't pinpoint anything driving up the price except that people were starting to come to the consensus that the underlying assets of the company are worth more.

"The problem is getting supply," the analyst said. "Nothing really changed overnight. It's our fundamental work that leads us to want to buy these distressed names."

Spansion filed for Chapter 11 on March 1.

Mentioned in this article:

Advanced Micro Devices Inc. NYSE: AMD

Alliance Data Systems Corp. NYSE: ADS

Citigroup Inc. NYSE: C

Intel Corp. Nasdaq: INTC

Spansion Inc. Pink Sheets: SPSNQ

Wells Fargo & Co. NYSE: WFC

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