Convertibles higher on firm equities; new Equinix deal in high demand; Suzlon sells $200 million bonds

By Reshmi Basu

New York, Sept. 21 - The convertible market hummed along Friday as U.S. equities closed the session with a healthy tone, shored up by strong corporate earnings while volumes jumped higher as futures and options contracts expired.

Meanwhile in the primary market, three news issues priced around the world, most notably a new deal from the technology sector.

In the United States, Equinix, Inc. upsized to $350 million and priced its convertible subordinated notes due Oct. 15, 2014 with a 3% coupon and 60% initial conversion premium.

The company initially announced plans to sell $300 million in convertible notes.

Citigroup is the bookrunner for the offering.

There is a $45.986 million over-allotment option.

The notes have a conversion price of $134.48 and a conversion ratio of 7.4360 shares per par.

The conversion rate will be increased by up to an additional 4.4616 shares per $1,000 principal amount if the stock price at the time of conversion exceeds the base conversion price of $134.48, with the number of additional shares set by a formula.

The convertibles priced at the same time as 3,662,556 shares of Equinix common stock, sold at $84.05 each. There is a 549,383 share over-allotment option on the common stock.

Equinix is a Foster City, Calif.-based network-neutral data centers and internet exchange services provider.

The company plans to use the proceeds for its acquisition of IXEurope plc, a European datacenter operator, which was announced in June.

Equinix sees hefty demand

Investors made a mad dash for the corporate deal, whose demand was bolstered by the scarcity of new offerings in recent weeks. Other enticing qualities included the deal size and the quality of the name, market sources noted.

The company has a "pretty decently performing stock" and it is a "real company doing a real size deal," remarked a desk analyst.

The recent new supply dribble has come from companies with market capitalizations of less than $1 billion. And those deal amounts have ranged from $50 million to $65 million as opposed to Equinix , which came in with a $350 million deal and whose market cap is more than $2.5 billion.

As one source put it: "It is a real deal."

In addition, Equinix's attractiveness was underpinned by the robust performance seen in the tech sector Friday, which rose after software company Oracle Corp. reported upbeat earnings.

"It is trading 103 ish so folks like it," a trader noted via an email. "Crazy stuff."

Meanwhile another analyst expressed his astonishment that the bond was accompanied with a 60% initial conversion premium, which is notably higher than the norm.

"I was surprised that a company could get away with such a high premium, but it shows there is demand for new issues and people are willing to pay for protection," he remarked.

Moreover, the company had more leeway to get away with the premium since it sold short-dated paper.

India's Suzlon sells $200 million

Moving overseas, India's Suzlon Energy Ltd. priced $200 million of five-year zero-coupon convertible bonds to yield 7.55% with an initial conversion premium of 30% over its common stock's volume-weighted average price.

The convertibles were offered at par.

Credit Suisse (Hong Kong) Ltd. was the bookrunner.

Suzlon is a Pune, India-based maker of wind turbines,

Also on the primary front, Infineon Technologies Investments BV priced a €190 million offering of three-year bonds exchangeable for 18.1 million American Depositary Shares of Qimonda AG.

The bonds bear interest at 1.375% per year.

The bonds are exchangeable at $14.74 for each Qimonda ADS, an exchange premium of about 35%.

Citigroup, Credit Suisse and JPMorgan are joint bookrunners of the Regulation S transaction.

There is a greenshoe for €25 million.

Infineon Technologies Investments is a subsidiary of Infineon Technologies AG, a Munich-based semiconductor producer.

In addition, Infineon Technologies AG priced 25 million ADSs of Qimonda, along with a 3.75 million ADS over-allotment option, as part of an effort to divest itself of part of its ownership stake in Qimonda, a Munich-based maker of semiconductor memory components. If the full over-allotment option is exercised, Infineon's stake in Qimonda will shrink to 77.5%.

Qimonda is a Munich-based maker of semiconductor memory components.

Convertibles higher on stocks

Moving back to trading, convertibles posted gains, finding support as the Dow industrials recorded its biggest weekly return since March.

Just a day earlier, the market had snapped a two-day adrenaline rush on the back of the Federal Reserve's decision to cut rates by a deeper than expected 50 bps.

On Thursday, the market erased the gains as inflation fears reared their head, propelling U.S. stocks into the red.

But Friday's action saw a turn of events on the back of upbeat corporate earnings from both Oracle and Nike Inc.

By the close, the Dow Jones Industrial Average index had added 53.49, or 0.39%, to finish the week at 13,820.19. The Nasdaq closed at 2,049.48, a gain of 16.87, or 0.83%. And the Standard & Poor's 500 moved up 7.00, or 0.46% to end at 2,049.48.

However some sources warned that it was too soon to gage market conditions while others were not completely convinced that confidence had returned.

As the analyst pointed out, part of Friday's uptick was also triggered by expiring futures and options contracts, not exactly a real barometer of investor sentiment.

Nonetheless, one sellside source said until market players have an understanding of where the economy is heading, the convertible new issuance calendar will have slim pickings, adding that unless there was "a concrete need for liquidity," corporates would wait until the uncertainty passes.

Equinix up in secondary

In trading, convertibles were seen higher, particularly in the tech sector.

Equinix's new 3% convertible subordinated notes due Oct. 15, 2014 was quoted at 103¾ versus a stock price of $85.

Equinix stock (Nasdaq: EQIX) gained 1.27, or 1.51%, on Friday.

However, there were some losers on the session. Atlanta-based home builder Beazer Homes USA Inc. saw its 4.625% convertible senior notes due June 15, 2024 close at $76 versus a stock price of $10.06.

They wrapped up Thursday at $76.50 versus a closing stock price of $10.63.

Beazer stock (NYSE: BZH) remained in the red Friday, giving up 0.37, or 3.55%.

Minneapolis-based US Bancorp, a commercial bank, also moved lower.

And US Bancorp's Libor plus minus 175 bps convertible senior debentures due Feb. 6, 2037 were spotted at 99.25 versus a closing stock price of $33.10.

They finished traded Thursday at 99.45 versus s stock price of $33.38.

U.S. Bancorp stock (NYSE: USB) shed 0.28%, or 0.84% on Friday.

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