Suntech, JA Solar fall on downgrades; InterMune continues rising; EMC, Amgen climb higher

By Kenneth Lim

Boston, Sept. 15 - Solar names continued to take a beating on Thursday, going against the current as the rest of the convertible market generally improved on the back of a strong rally in equities.

Suntech Power Holdings Co. Ltd. and JA Solar Holdings Co. Ltd. were both lower on the day following concerns about the industry and downgrades on their stocks.

InterMune, Inc.'s new convertibles continued to gain outright, in line with the underlying stock, a day after making their debut on the secondary market.

Activity was otherwise well spread among the rest of the market with few significant company-specific headlines.

"Trace volumes were pretty decent," one sellside trader said.

Another trader said the market was revitalized after InterMune's offering brought the first new deal in about six weeks. A rally in the stock market helped as well.

"Stocks did well today because of the news out of Europe about the liquidity program," the second trader said. "I think maybe it freed up some accounts to come back and trade. It also helped to have some new paper in the market."

Some of the more active names were the usual investment-grade names.

EMC Corp.'s 1.75% convertible due 2013 added about two points outright to trade at 148.5 against a common stock price of $22.50, in line with the underlying stock.

The EMC common stock rose 3% or $0.66 to close at $22.69 on Thursday.

EMC is a Hopkinton, Mass.-based information technology infrastructure company.

Amgen Inc.'s 0.375% convertible due 2013 gained a quarter-point outright to change hands at 98.5 versus a $55.60 stock price.

Shares of the Thousand Oaks, Calif.-based drugmaker closed at $56.26 on Thursday, up by 1.81% or a dollar.

"The higher quality names are getting the most interest because there's still a fair amount of fear in the market about Europe and the economy," a sellsider said. "When there's uncertainty about credit, usually the higher quality names are the first to recover."

Dark days for solar names

Suntech Power's 3% convertible due 2013 slipped 1.5 points outright to 64.5 against a common stock price of $3.73 on Thursday, a day after the common stock was downgraded by Jefferies.

The shares eased 2.08% or $0.08 to close at $3.77 apiece on Thursday.

"Those were up close to 69 last week, but they're 64.5 today," one trader said. "People began buying them up at the end of August, and now they're taking a hit."

JA Solar's 4.5% convertible due 2013 was also quiet, but it was marked at 80.25 bid, 80.75 offered versus $2.50. The common stock ended the day at $2.47, down by 5.36% or $0.14 per share.

Wuxi, China-based Suntech and Zhabei, China-based JA Solar are makers of solar cells.

Jefferies on Wednesday downgraded Suntech and JA Solar to "underperform" from "hold" on lower-than-expected earnings outlooks.

"While business conditions are slowly improving month-over-month for September, demand is below plan for most distributors and installers," Jefferies equity analyst Jesse Pichel wrote in a note.

The solar industry has been come under intense pressure on the back of sharply falling prices for solar cells amid stronger competition, and the sector as a whole has been underperforming, one convertible sellsider said.

"Two years ago any kind of green business got a lot of attention because they were getting a lot of subsidies, and the whole sector was supposed to be the next big thing," the sellsider said. "That bubble has been popped."

The sellsider said the fact that a number of the solar names in the convertible space were based in China, where there are concerns about governance, has always made the space riskier than normal.

"All of them came with large spreads, high volatility," the sellsider said. "I think most people bought them hedged."

InterMune continues gains

InterMune's new 2.5% convertibles due 2018 improved by about 1 point outright on Thursday to trade at 103.5 against a common stock price of $25.25 per share.

The notes sold at par in a $135 million deal on Wednesday amid strong demand.

"Those are still doing well," a trader said. "No surprise. Stock's doing well, demand was strong when the sold it, and it's the only game in town right now."

InterMune's deal was the first in about six weeks for the convertible market, but the trader did not expect many more to follow soon.

"There's too much volatility in the market right now to get a deal done easily," the trader said.

"But at some point some companies aren't going to be able to wait it out and they'll be forced to come back to the market. We can only hope that's sooner rather than later."

Mentioned in this article:

Amgen Inc. Nasdaq: AMGN

EMC Corp. NYSE: EMC

InterMune, Inc. Nasdaq: ITMN

JA Solar Holdings Co. Ltd. Nasdaq: JASO

Suntech Power Holdings Co. Ltd. NYSE: STP

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