Morning Commentary: Planned Pattern Energy deal looks cheap; Illumina convertibles drop outright

By Rebecca Melvin

New York, July 22 – Pattern Energy Group Inc.’s planned $225 million offering of five-year convertible notes was looking cheap for investors, with fair value seen at 102.5 using a credit spread of 375 basis points over Libor and 28% vol., a Connecticut-based trader said Wednesday.

The Pattern Energy deal was talked at a 3% to 3.5% coupon and 22.5% to 27.5% initial conversion premium.

Pattern shares were last down 4.5% to $24.58 ahead of the expected pricing of the convertibles deal after the market close on Wednesday.

Elsewhere Illumina Inc. was down on an outright basis after the San Diego-based developer of genetic research tools posted disappointing earnings that pulled its common stock down 11%.

Illumina’s 0% convertible notes due 2019 traded down to 115 from 122, according to Trace data, and the Illumina 0.5% convertible notes due 2021 traded down to 121 from 128 to 130.

Illumina’s common shares were down $26.10 at $211.44 at late morning.

Sources said they hadn’t yet determined how the Illumina bonds did on swap, but one suspected that the paper was probably in line on a dollar-neutral, or hedged, basis.

The company reported sales for the quarter of $539 million, which didn’t meet analysts’ average estimate for sales of $542 million.

Excluding one-time items, earnings per share were 80 cents, compared with the average analyst estimate of 77 cents.

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