Sybase, THQ edge higher in gray; Spansion jumps to 20; BorgWarner drops; Wesco, USEC lower

By Rebecca Melvin

New York, July 29 - Convertibles players were happy to see some new issuance come to market after a few days hiatus following Intel Corp.'s large $1.75 billion new issue last week.

Both Sybase Inc., which launched an offering of $250 million of 30-year convertibles, and THQ Inc., which planned to price $90 million of five-year notes, both scheduled for late Wednesday, were getting a once-over from players.

Sybase came up the favorite, initially trading in the gray market at plus 1 point to 1.5 points. Later it was stronger at plus 2 bid, and one source put the gray market on the issue at plus 1.75 points to 3 points.

Sybase's existing 1.75% convertibles traded at 144 versus a share price of $35.45.

Spansion Inc. moved higher again after filing late Tuesday quarterly financial information that revealed the bankrupt Flash memory provider has a much stronger cash position than previously supposed.

The paper traded up about 5 points to 20, and was left at 20 bid, 21 offered in the session, up from 3.5 early last week.

BorgWarner Inc., on the other hand, was down about 5 points outright after the automotive parts supplier reported a worse-than-expected quarterly loss on lower production volumes and restructuring charges.

Wesco International Inc. convertibles slipped back about a point after jumping in active trade Tuesday on news of an exchange offer for the 1.75% convertibles due 2026 and the 2.625% convertibles due 2025.

USEC Inc. slumped a second consecutive day after news the U.S. Department of Energy denied a $2 billion loan guarantee that was crucial for its plans to build a uranium-enrichment plant in southern Ohio.

Sybase gains in the gray

Sybase "was pretty okay in the gray," a New York-based sellside convertibles analyst said, valuing the paper at 3.7% cheap at the midpoint of price talk, using a credit spread of 475 basis points over Libor and vol. of 28%.

A second sellsider valued the Sybase deal at 2.1% cheap at the mids, using similar inputs.

The Dublin, Calif.-based wireless software company planned to sell $250 million of 30-year convertibles late Wednesday talked at 3.5% to 4% with an initial conversion premium of 30% to 35%.

At press time, the pricing call was still going on, a syndicate source said. Earlier, sources had said the deal was oversubscribed.

There was some criticism of the large premium - which is a little higher than what the market has been seeing of late, with premiums typically in the 20% to 25% range. But that hurdle was seen as easily surmountable given that the issuer is a well-known name, familiar to convert holders as a solid credit, a New York-based analyst said.

The new paper pulled up in the gray to between plus 1 and plus 3 points, according to sources.

The company plans to use proceeds to take out $200 million of existing debt, namely its 1.75% convertible subordinated notes due 2025, and to buy back $50 million in stock.

Sybase's existing 1.75% convertibles trade well in the money, and on Wednesday changed hands at 144 versus a share price of $35.45.

The new Rule 144A deal, being sold via joint bookrunners Merrill Lynch and JP Morgan, is expected to appeal to traders for being more balanced, since the existing paper - which priced in 2005 - is more like equity.

The new convertibles will be non-callable for five years, with puts in years five, 10 and 15, or in the event of a fundamental change.

THQ quiet in the gray

THQ was mostly quiet in the gray, although analysts saw it slightly cheap at the midpoint of talk, using a credit spread of about 1,200 basis points over Libor and a vol. of 40%.

THQ priced $90 million of five-year convertible senior notes late Wednesday with a 5% coupon, which was the midpoint of talk, and with an initial conversion premium of 25%, which was the upper range of talk.

The video game maker is a lesser known name in the convert universe, although a sellside analyst said that it may be familiar to some due to the fact that its competitor Jakks Pacific Inc. has a convertible.

Cash flow problems and borrow issues were cited as detractions by some sources. But a sellside analyst said his firm "saw a top rate borrow in the name."

In addition, earnings improved in the most recent quarter, the sellsider pointed out. "It was free cash flow positive, in fact. Management believes the company will generate cash for the year," the sellsider said.

The Rule 144A deal is being sold via bookrunner Morgan Stanley.

The notes are non-callable for three years, and then provisionally callable subject to a price hurdle of 150%.

THQ intends to use proceeds for general corporate purposes.

THQ is a developer and publisher of video games based in Agoura Hills, Calif.

Spansion jumps 5 points on better cash

Spansion's 2.25% exchangeables due 2016 jumped Wednesday to about 20, which was up about 5 points from Tuesday, when the high print was 15.5, and up from 7.75 bid, 8.75 offered a week ago.

The paper had a high print of 20 bid, 20.5 offered on Wednesday, with the market ending at 19.75 bid, 20.75 offered, a sellsider said.

At one point, the paper was at 0.125. "Everybody thought they were worthless, and that the equity was going to go to the seniors," a New York-based sellside trader said.

But late Tuesday, Spansion announced select financial results for its second quarter ended June 28, revealing an increased cash position to $220 million.

"They are going to generate $220 million cash, up from $150 million, and if they can generate that much, then it's likely the seniors and subs will get reinstated and the convertibles will get the equity," the sellsider said, referring to the company's straight senior and subordinated debt.

"We've seen every valuation from 0 to 80. At this point, even the stock might get something," the sellsider said.

Spansion filed for bankruptcy in March and is currently expected to emerge from bankruptcy at the end of the fourth quarter, the sellsider said.

"All the hedge funds are paying attention to this name," he added.

BorgWarner drops on quarterly results

BorgWarner's 3.5% convertible senior notes due 2012 traded down about 5 points outright to 125 after the Auburn Hills, Mich.-based automotive parts supplier reported second-quarter earnings that missed estimates.

During the session, the BorgWarner 3s traded at 127.5 versus $33.

Shares of the company slumped $3, or nearly 9%, to settle at $32.48 Wednesday.

The company posted its earnings after 1 p.m. ET revealing a loss of $35.9 million, or $0.31 per share, compared with income of $87.5 million, or $0.74 per share, in the second quarter of 2008.

The second quarter loss included a $0.29 per share charge related to restructuring activities.

Revenue was down 40% to $916.2 million, from $1.52 billion in the second quarter of 2008.

BorgWarner flagged its $373.75 million convertibles offering, completed during the quarter, as a highlight. It also said that while the first half was dragged down by lower production and restructuring charges, it did believe that production volume would pick up for the second half, putting results in line with expectations, the company said.

Wesco slips back a point after big jump

Wesco 1.75% convertibles due 2026 slipped about a point to 98 after jumping 11 or 12 points on Tuesday.

The Wesco 2.625% convertibles due 2025 traded at 98.875 which was down from par on Tuesday.

The Pittsburgh-based distributor of electrical construction products and supplies announced late Monday the start of an exchange offer for its outstanding 1.75% convertible senior debentures due 2026 and its 2.625% convertible senior debentures due 2025.

The company is offering to exchange $960 principal amount of its new 6% convertible senior debentures due 2029 for each $1,000 principal amount of the 1.75% debentures. It is offering $1,010 principal amount of the new 6% convertibles for each $1,000 principal amount of 2.625% debentures.

Wesco said it will issue a maximum of $345 million of the new securities, and the deal is conditioned on at least $100 million being issued.

Tenders for the 1.75% debentures will be accepted before the 2.625% debentures.

The offer ends at midnight ET on Aug. 21.

Mentioned in this article:

BorgWarner Inc. NYSE: BWA

Spansion Inc. Pink Sheets: SPSNQ

Sybase Inc. NYSE: SY

THQ Inc. Nasdaq: THQI

USEC Inc. NYSE: USU

Wesco International Inc. NYSE: WCC

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