Pattern Energy offering looks cheap; Illumina drops outright after sales disappoint

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 fell $2.04, or 8%, to $23.70 ahead of the pricing of the bonds expected after the market close.

Illumina Inc.’s convertibles fell on an outright basis and were flat to a little lower on a dollar-neutral, or hedged, basis after the San Diego-based developer of genetic research tools posted quarterly sales that missed estimates, pulling its common stock down as much as 13% before shares pared some losses to end lower by 8%.

Convertibles players watched the technology sector after Apple Inc. reported sales that didn’t match expectations. Among convertible technology names, NXP Semiconductors NV and Intel Corp. were in focus. The common shares of NXP were lower, but not much was happening in the bonds, a New York-based analyst said.

“NXPI stock was lower probably because of the Apple news,” the analyst said.

Meanwhile, Intel’s stock and convertibles were steady. “Intel reported last week and had weak guidance, and that stock has already given up quite a bit this year,” the analyst said.

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