New SunEdison, Alpha Natural gain in secondary action; existing Alpha Natural also better

By Rebecca Melvin

New York, Dec. 13 - SunEdison Inc.'s new $1 billion of convertible senior notes in two tranches traded up on their debut in the secondary market on Friday after the St. Peters, Mo.-based silicon wafer company priced the two-tranche deal at the midpoint of talk.

"It was trading up nicely," a syndicate source said. Both issues appeared to have added about 2 points on a dollar-neutral, or hedged, basis.

Meanwhile, Alpha Natural Resources Inc.'s newly priced 4.875% seven-year convertibles also traded well, according to a syndicate source.

The new Alpha Natural bond was seen at about 100.875 bid, 101.375 offered versus the close of $6.32, which was up about 2 points on a dollar-neutral basis, he said.

Alpha Natural's existing convertibles also improved. The most recently priced Alpha Natural 3.75% convertibles added about 0.5 point, and the two older issues, of which some are being bought back by the company with proceeds of the new deal, were also improved, he said.

The new registered Alpha deal was upsized to $300 million from $250 million and priced at the cheap end and beyond the cheap end of talk.

Most action in the convertible bond market was concentrated on the new deals. One trader said that 90% of his trading was in the new SunEdison and Alpha Natural paper.

Equity markets ended mostly flat, posting declines for the week. The week saw a three-day downturn after Monday's record high on the S&P 500 stock index to 1,808.37. A week ago, a better-than-expected jobs report boosted the S&P stock index by 1.1%, but worries flared this week about the impact of tapering by the Federal Reserve of its quantitative easing program, which is anticipated by many market players to begin in the short term.

SunEdison improves

SunEdison's 2% five-year convertibles, or the A tranche, "held up well," a New York-based trader said. When the common stock rebounded from early lows, the paper looked better and was said to have expanded 2 points on the day.

The SunEdison 2.75% seven-year convertibles, or the B tranche, were quoted at 100.875 bid, 101.875 offered versus an underlying share price of $11.35 earlier in the session. He said that he saw the B tranche also up about 2 points since being launched.

SunEdison shares fell in early action but pared losses to end the day down only 11 cents, or 0.9%, to $11.46.

SunEdison priced an upsized $1 billion of convertible senior notes in two tranches, including $500 million of 2% five-year convertibles and $500 million of 2.75% seven-year convertibles, both with an initial conversion premium of 27.5%, according to a syndicate source.

The Rule 144A offering was upsized from a previously announced $800 million in two tranches. Deutsche Bank Securities Inc., Goldman Sachs & Co., Wells Fargo Securities LLC and BofA Merrill Lynch were the joint bookrunners.

Pricing came at the midpoint of talk for both issues, which was a 1.75% to 2.25% coupon for the 2018 notes and a 2.5% to 3% coupon for the 2021 notes, both with a premium talked at 25% to 30%.

The notes are non-callable with no puts and have contingent conversion if shares exceed 120% of the conversion price. They also have net share settlement and takeover protection.

Proceeds are being used to repay debt and fund the cost of a call spread.

The strike price of the warrant transactions related to the call spread for the 2018 notes will initially be $18.35 per share, which boosts the premium from the issuer's perspective to about 60%.

The strike price of the warrant transactions related to the call spread for the 2021 notes will initially be $18.93 per share, which is a premium of about 65% for SunEdison.

Alpha Natural expands

Alpha Natural's new 4.875% convertibles were seen at 100.875 bid, 101.375 offered versus the close for the underlying shares of $6.32.

Alpha Natural shares ended down 12 cents, or 1.9%, at $6.32, and the notes were seen up 2 points on a dollar-neutral basis.

The Bristol, Va.-based coal producer priced an upsized $300 million of seven-year convertibles at par after the market close Thursday to yield 4.875% with an initial conversion premium of 45%. There is also an upsized $45 million greenshoe.

Pricing came beyond the cheap end of talk for the coupon, which was 4% to 4.5%, and at the cheap end of 45% to 50% premium talk.

Barclays, BofA Merrill Lynch, Goldman Sachs and Deutsche Bank Securities were joint bookrunning managers of the deal. Joint lead managers were Morgan Stanley & Co. LLC, BMO Capital Markets Corp. and Citigroup Global Markets Inc. Co-managers were Credit Agricole Securities (USA) Inc., PNC Capital Markets LLC and BB&T Capital Markets.

The notes are seven-year bullets with no calls or puts. They have contingent conversion if shares exceed 130% of the conversion price and net share settlement. They are also takeover protected.

Proceeds will be used to fund purchases of about $34 million of Alpha's 2.375% convertible notes due 2015 and $181 million of the 3.25% convertible notes due 2015 issued by Alpha Appalachia Holdings, Inc., formerly known as Massey Energy Co., a wholly owned subsidiary of Alpha.

Remaining proceeds are intended to be used for general corporate purposes.

Existing Alpha 'all better'

Alpha Natural's 3.75% convertibles were seen at 98.325 bid, 98.875 offered versus a share price of $6.44 during the session. That was up about 0.5 point on a dollar-neutral basis, a syndicate source said.

He said trades were done closer to the offer side of the previous day's range.

Shares closed off of that $6.44 level at $6.32.

There are a broad range of opinions as to what the valuation on the new bonds should be, and that has led to all the bonds doing better, the syndicate source said.

"They are all doing better," he said.

With proceeds of the new bonds, the company is redeeming parts of two existing issues, and those were also seen in trade.

The existing Alpha Natural 3.25% convertibles due 2015 traded at 99.25, which was "better."

The existing Alpha Natural 2.375% convertibles due 2015 also traded at 99.25.

Mentioned in this article:

Alpha Natural Resources Inc. NYSE: ANR

SunEdison Inc. Nasdaq: SUNE

© 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.