NRG Yield trades flat to slightly lower; ADM active at par; Cemex flat on hedge, active

By Rebecca Melvin

New York, Feb. 6 - NRG Yield Inc.'s newly priced 3.5% convertibles due 2019 traded around par and slightly lower on Thursday in tandem with shares of the Princeton, N.J.-based electricity generator after the $300 million offering of senior notes priced at the cheap end of talked terms, market sources said.

NRG Yield shares moved around but trended unchanged to lower in extremely active trade.

Back in established issues, Archer-Daniels-Midland Co.'s 0.875% convertible remained a top volume name on the Trace tape at around par ahead of that issue's upcoming maturity on Feb. 15.

The three convertible issues of Cemex SAB de CV traded higher on an outright basis, but were largely unchanged on a dollar-neutral, or hedged, basis, as shares of the Monterrey, Mexico-based cement producer added 1.9%, a New York-based trader said.

Earnings news was also a driver of trade. Printed circuit board company TTM Technologies Inc. saw its 1.75% convertibles rise in trade after reporting earnings that beat estimates.

Equities rallied after positive jobless claims data and ahead of the Labor Department's monthly jobs report expected on Friday.

The Dow Jones industrial average jumped 188.30 points, or 1.2%, to 15,628.53; the Standard & Poor's 500 index added 21.79 points, or 1.2%, to 1,773.43; and the Nasdaq composite gained 45.57 points, or 1.1%, to 4,057.12.

NRG Yield flat to weaker

NRG's 3.5% convertibles due 2019 traded around par in the early going Thursday and were also seen at 99.25 bid, 100 offered as shares of the company slipped but kept trending toward the unchanged mark in active trade.

NRG Yield shares ended down 4 cents at $36.47.

A unique feature of the bond is that it has dividend protection at the current dividend level but that protection slides upward by 15% annually for the life of the bond.

NRG is a dividend-growth company and this gives it the flexibility of continuing to pay out the dividend in the future without having to additionally compensate the convert investors.

The dividend protection is different from standard dividend protection that normally stays at a quarterly level throughout the life of the security. The threshold step up in this case will protect dividends up to about 66 cents in the final year before maturity.

NRG Yield priced $300 million of 3.5% five-year convertible senior notes with an initial conversion premium of 27.5% over the current stock price.

Pricing came at the cheap end of talk, which was for a 3% to 3.5% coupon and a 27.5% to 32.5% premium.

The Rule 144A offering has a $45 million greenshoe and was sold via joint bookrunners Morgan Stanley & Co. LLC, BofA Merrill Lynch, RBC Capital Markets and Goldman Sachs & Co.

The notes are guaranteed on a senior basis by NRG Yield LLC and NRG Yield Operating LLC, the direct and indirect subsidiaries of the company.

NRG Yield will lend proceeds from this offering to Yield Operating LLC, which will allocate the funds for working capital and general corporate purposes, including the acquisition of assets from NRG Energy Inc. or other third parties.

The convertibles are non-callable. They have net share settlement and contingent conversion if shares exceed 130% of the conversion price. They also have takeover protection and dividend protection at the current dividend of 33.5 cents and then rising on a sliding scale at 15% annually.

Cemex trades flat on hedge

Cemex's 4.875% convertibles due 2015 traded at 123.2 during the session, which was up 1.6 points on the day on an outright basis, according to Trace data, but about flat on a dollar-neutral basis. The outright move was up on top of a gain of about 1.5 points to 2 points on Wednesday.

Cemex's 3.75% convertibles due 2018 and Cemex's 3.25% convertibles due 2016 were also trading a bit higher on an outright basis but flat on a hedged basis.

Cemex shares, which rose to as high as $13.00 during the session, closed up 24 cents, or 1.9%, to $12.85. The shares traded very actively, and all three of the Cemex convertibles were active, a New York-based trader said.

"Cemex was relatively unchanged. It was getting beat up last week, so it was active today but not really moving" in terms of price, a New York-based trader said.

TTM gains post earnings

TTM's 1.75% convertibles due 2020 rose to about 106.125 bid, 106.5 offered on Thursday after trading earlier in the session at 104.

TTM shares gained during the session to end up 37 cents, or 4.7%, to $8.29 in active trade.

When the bonds debuted seven weeks ago on Dec. 17, they traded to 101.25, according to Trace data, while TTM shares were down 3 cents, or nearly 0.5%, at $7.68.

Late Wednesday, TTM reported non-GAAP income for the fourth quarter of $22.1 million, or 27 cents per share, on sales of $366.1 million, compared to $381.7 million in the year-earlier period. Gross margin was 19.2% for the fourth quarter.

For all of 2013, non-GAAP income was $51.3 million, or 62 cents per share, on sales of $1.4 billion.

Looking ahead for its 2014 first quarter, the company estimated revenue in the range of $290 million to $310 million and non-GAAP earnings in the range of $0.03 to $0.09 per diluted share. The weaker guidance is based on a seasonal decline in its cell phone and computing businesses, the company said.

Mentioned in this article:

Archer-Daniels-Midland Co. NYSE: ADM

Cemex SAB de CV NYSE: CV

NRG Yield Inc. Nasdaq: NYLD

TTM Technologies Inc. Nasdaq: TTMI

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