SunEdison weaker; Abengoa seeks creditor protection; Total prices $1.2 billion convertible

By Rebecca Melvin

New York, Nov. 25 – SunEdison Inc.’s convertibles were quoted lower but thinly traded on Wednesday as the overall U.S. convertibles market quieted ahead of the Thanksgiving holiday.

U.S. financial markets will be closed on Thursday and will have abbreviated trading sessions on Friday.

SunEdison’s convertibles were down with lower shares, which were hurt by a downgrade to “sell” from “neutral” by UBS Research, which also cut its price target for the solar company to $2.00 from $3.00.

Shares fell 21%, although for much of the session they were down about 16% after having spiked 37% on Tuesday.

SunEdison’s strength on Tuesday was related to news of a new solar deal for the company and debt repayment.

Meanwhile, news that Spain’s Abengoa SA renewable energy and engineering firm started insolvency proceedings also contributed to negative sentiment for SunEdison, a New York-based trader said.

SunEdison’s 6.75% mandatory preferred convertibles were indicated down to 236 to 237 from 279.

Abengoa “will continue negotiations with creditors with the goal of reaching an agreement to ensure its financial viability,” according to an Abengoa filing. Under Spanish law, the company has four months to continue to talk with creditors before they are able to force bankruptcy proceedings.

Abengoa shares fell up to 70% on Wednesday. Abengoa has several convertible bond issues, including a 5.125% exchangeable note that priced earlier this year and which matures in 2017.

In the primary arena, France’s Total SA launched and priced $1.2 billion of seven-year convertible bonds at the cheap end of talked terms to yield 0.5% with an initial conversion premium of 20%.

Total priced its Regulation S bonds together with call options, which is similar to pricing a bond with a call spread, except without the warrant transactions. The all-in cost is still cheaper than straight debt, a syndicate source said.

Equity indices were little changed amid light volume. At the end of the session, the S&P 500 stock index was down 0.27 point, or 0.01% at 2,088.87 and the Nasdaq Composite ended up 13.34 points, or 0.26%, at 5,116.14.

Total new issue prices

Pricing of Total’s $200,000 par bonds came at the cheap end of talked terms for a 0% to 0.5% coupon and a 20% to 25% premium over the share reference price.

The Regulation S deal is denominated in U.S. dollars, an issuer decision driven largely by funding needs and possibly by currency reporting, as well, a syndicate source said.

Regulation S investors can buy paper in euros, U.S. dollars or British pound sterling.

The bond’s reference price is being determined by the daily volume-weighted average price of shares on the Euronext Paris exchange over 10 trading days beginning Nov. 26.

The bond hedge difference is that Total didn’t do a warrant. Instead Total will buy the bond hedge and amortize it over the life of the bond. It is still lower cost than straight debt, a syndicate source said, and this structure has been used several times recently. Last week, Vodafone Group plc priced £600 million of five-year equity-linked bonds with a 0% coupon and 30% initial conversion premium. And Vodafone also priced cash-settled call options with the bonds.

“There is no upper strike price,” the syndicate source said. The deals are typically based on 10 days of averaging to determine the stock reference price.

The longer period is likely due to the fact that the banks offering the bond hedge’s lower strike call have to hedge themselves and buy stock and they will buy over the 10 days, a syndicate source said.

The cash-settled bonds are non-callable and mature Dec. 2, 2022.

Joint bookrunners were JPMorgan, BNP Paribas and Credit Agricole.

Net proceeds will be used for general corporate purposes.

Paris-based Total is an oil, gas and solar power company.

Mentioned in this article:

Abengoa SA Madrid: ABG

SunEdison Inc. Nasdaq: SUNE

Total SA Paris: FP

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