SunPower plans $300 million offering; existing SunPower improves; Toll Brothers in line

By Rebecca Melvin

New York, May 22 - SunPower Corp. launched an offering of $300 million of five-year senior convertible debentures early Wednesday, but hedged investor interest was curbed because a Total SA subsidiary agreed to purchase $200 million of the deal, leaving only $100 million to be offered to the public.

SunPower's existing notes were lower outright, but expanded modestly on a dollar-neutral, or hedged, basis, a New York-based trader said.

Elsewhere, the convertibles of Toll Brothers Inc. were higher outright, but mostly in line on a dollar-neutral basis, after the Horsham, Pa.-based homebuilder reported better-than-expected quarterly results ahead of the market open.

Thursday will bring earnings reports from Bristow Group Inc. and DryShips Inc. But the convertibles of those companies were not heard in trade on Wednesday.

As has been the case in recent sessions, NetApp Inc.'s 1.75% convertibles, which mature June 1, traded actively.

Infinera Corp. launched an offering of $100 million of five-year convertible senior notes after the market close. The Rule 144A offering is for private institutional investors and has a $15 million greenshoe.

Further details about the deal for the Sunnyvale, Calif.-based optical networking equipment and services company was not known by press time.

Stocks pulled back on the heels of the release of minutes from the last Federal Reserve policy setting meeting, which showed disagreement among members of the Federal Open Market Committee as to when to scale down asset purchases.

Federal Reserve chairman Ben Bernanke said in testimony before Congress earlier Wednesday that tapering may occur within the next several meetings, but the Fed minutes revealed that some officials are open to tapering as early as the June meeting set June 18-19.

The Dow Jones industrial average fell 80.41 points, or 0.5%, to 15,307.17; the S&P 500 stock index fell 13.81, or 0.8%, to 1,655.35 and the Nasdaq stock index declined 38.82, or 1%, to 3,463.30.

Bernanke said in testimony before Congress that U.S. economic growth has continued at a modest pace so far this year, but winding down the $85 billion per month bond buying program will hinge on whether economic data continues to improve.

First-quarter gross domestic product was 2.5%, increased from 1.75% in 2012, with growth supported by U.S. businesses and households, Bernanke said.

The 7.5% unemployment rate represents a significant improvement from its low point but is nevertheless historically high, he said.

Meanwhile, with more than 200,000 jobs per month added over the past six months, and an expansion of 6 million jobs since the low point, unemployment and underemployment remain headwinds for the economy, he said.

SunPower to price

SunPower planned to price its $300 million deal of senior convertible debentures after the market close Wednesday. The debentures were talked to yield 0.75% to 1.25% with an initial conversion premium of 27.5% to 32.5%, according to a syndicate source.

There will be "no hedgies," a New York-based trader said.

A second trader said he expected the new deal to be pretty quiet.

Total Gas & Power USA SAS, a subsidiary of Total SA that owns about 65% of SunPower's common stock and an institutional accredited investor, has agreed to purchase - and the initial purchasers have agreed to sell - $200 million principal amount of the debentures, assuming that the full $300 million principal amount is sold.

SunPower shares opened lower, but selling accelerated into the close, with the shares ending down $1.81, or 8.6%, in heavy volume at $19.19.

The Rule 144A deal was being sold via Deutsche Bank Securities Inc. and RBS Securities Inc., with possible participation from Citigroup Global Markets Inc., a syndicate source said.

Proceeds will be used for general corporate purposes, which may include redeeming or repurchasing some of SunPower's outstanding debentures and working capital.

The debentures are non-callable for life, with no puts and will be settled in stock.

The company is a San Jose, Calif.-based provider of high-efficiency solar cells, solar panels and solar systems.

Existing SunPower better

SunPower's existing 4.75% convertibles due 2014 traded at 108.5, which was down 0.6 point, and was also see at 110.375 versus an underlying share price of $21.05, which was a stock level close to the previous close.

It was better by maybe 0.375 point, a trader said.

SunPower's existing 4.5% convertibles due 2015 traded at 118.3, which was down 2.4 points, according to Trace data. But the paper was also seen at 120.5 bid, 121.5 offered versus an underlying share price of $21.05 at the close.

"It was a little better," a trader said.

Toll Brothers trades in line

Toll Brothers' 0.5% exchangeable senior notes due 2032 were seen at 111.75 versus a share price of $38.25 early in the session.

It was seen a little better on a hedged basis early, while at the close it was called "in line, maybe modestly better."

The paper was seen trading on a 45% to 50% delta.

Toll Brothers' shares zoomed up by more than 8% early, but pared gains, to end higher by $1.06, or 2.9%, at $37.07.

The Horsham, Pa.-based company reported second-quarter earnings of $24.7 million, or 14 cents per share, in the last three months, despite recording a $16.3 million tax expense. That compared with net income of $16.9 million, or 10 cents per share, in the year-earlier quarter, when the company recorded a $1.2 million income tax benefit.

Revenue climbed 38% to $516 million. Analysts on average had expected earnings of 7 cents per share on $515.5 million in revenue.

The company said this year's second quarter included a $13.2 million pretax gain tied to a litigation settlement.

The company also cited recent Commerce Department data that "application for new construction breezed past a five-year peak, signaling a robust and sustained revival in the real estate sector."

Toll Brothers said in its release, "the housing recovery appears to be very broad."

Mentioned in this article:

Bristow Group Inc. NYSE: BRS

DryShips Inc. Nasdaq: DRYS

NetApp Inc. Nasdaq: NTAP

SunPower Corp. Nasdaq: SPWR

Toll Brothers Inc. NYSE: TOL

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