Prospect Capital slips from discount; GT Advanced down on hedge; Greenbrier adds on hedge

By Rebecca Melvin

New York, Dec. 18 - Prospect Capital Corp.'s newly priced $200 million of six-year convertible notes slipped in trade on their debut in the secondary market Tuesday after the New York-based business development company's overnight deal was reoffered at 97.25, according to an East Coast-based trader.

GT Advanced Technologies Inc.'s newer convertible notes, which priced in September, traded down outright and on a dollar-neutral, or hedged, basis along with the underlying shares after the solar equipment supplier warned it will post a loss for the fourth quarter and won't meet 2013 estimates.

Greenbrier Cos. Inc.'s longer-dated convertibles looked to be up a point or two on a dollar-neutral basis after activist investor Carl Icahn proposed a $20-per-share buyout of the railcar company by rival American Railcar Industries Inc.

Also better on the day on an outright basis were Goodrich Petroleum Corp.'s convertibles on word that insiders have been purchasing the Houston-based oil and gas exploration and production company's stock.

Jefferies Group Inc.'s convertibles weren't heard in trade after the New York-based midsize investment bank posted fiscal fourth-quarter earnings that were up 48% on higher revenue.

"I haven't looked at it for a long time because they had always traded too rich when rates were higher. They probably got more attractive because they went down to the 90s," a New York-based trader said of the Jefferies convertibles.

In equities, the Dow Jones industrial average notched a second straight triple-digit gain amid hopes of a U.S. budget deal that will help avert the fiscal cliff.

The Dow closed up 115.57 points, or 0.87%, at 13,350.96; the S&P 500 stock index closed up 16.43 points, or 1.2%, to 1,446.79; and the Nasdaq stock index ended higher by 43.93 points, or 1.5%, at 3,054.43.

Prospect Capital flat to down

Prospect Capital's newly priced 5.875% convertibles due 2019 traded at 97, which was down 0.25 point from their reoffered level at 97.25.

The convertibles traded there pretty much all day, a market source said.

The issuance is interesting in that yet another business development company has tapped the convertibles market this year, and the deal represents the third time that Prospect Capital has come to the market for funds.

"It was overnight; some guys love this type of paper because it is investment grade," a trader said.

The New York venture capital and private equity firm priced $200 million of six-year convertible notes ahead of the market open Tuesday at a reoffered 97.25, with a coupon of 5.875% and an initial conversion premium of 15%.

The deal came at the cheap end of reoffer talk, which was 97.25 to 97.75, and at the talked price points for the coupon and premium.

The deal was sold via bookrunner Goldman Sachs & Co., and there is a $30 million greenshoe.

The notes are non-callable. There is full one-way dividend protection in the form of a conversion rate adjustment for any dividend above $0.110025 per month, as well as takeover protection.

Proceeds are intended to be used to maintain balance sheet liquidity, including investments in high-quality short-term debt instruments, and thereafter to make long-term investments in accordance with Prospect Capital's investment objectives.

Prospect Capital last raised funds in the convertible bond market in August, when it priced $200 million of 5.75% 5.5-year convertibles in an overnight deal that was reoffered at 98.

GT Advanced recedes

GT Advanced Technologies' 3% convertibles due 2017 traded down to 71 versus an underlying share price of $3.07. That was down on an outright basis from 78.5 versus an underlying share price of $3.50 on Monday, a trader said.

On a 65% delta, that was down about 2 points on a hedged basis, market players said.

The GT Advanced convertible is a $230 million deal, which priced concurrently with convertible note hedge and warrant transactions, at the end of September. Given its swift drop to near 70 in just three months, it is on track to be the worst performing new issue of the year.

When the deal was priced in September it was well oversubscribed, and the risk/reward profile was said to fit perfectly for that kind of stock, which is volatile but with a reasonably solid balance sheet.

GT Advanced Technologies shares skidded 39 cents, or 11.3%, to $3.07 in heavy volume on Tuesday after the Merrimack, N.H.-based solar equipment and efficient lighting products provider warned that it will report a loss for the fourth quarter and fall short of estimates next year amid tough market conditions that are unlikely to improve until 2014.

The company forecast a loss of 5 to 10 cents per share for the quarter ending Dec. 31. Analysts had expected a profit of 14 cents a share, according to Thomson Reuters.

The company also said it now anticipates earnings of 25 cents to 45 cents a share in 2013 on sales of $500 million to $600 million. Analysts were expecting earnings of 82 cents per share on revenue of $662 million, according to Bloomberg Business News.

The company said its solar customers are facing slowing demand, plunging prices and a supply glut, which are driving down sales of GT Advanced's manufacturing systems.

Sales in the current quarter will be $95 million to $102 million, and the company will take a charge of $80 million to $90 million to write down the majority of its inventory of its DSS product line of systems used to grow polysilicon, the main ingredient in solar cells.

Other charges are possible for the current quarter in light of declining asset value, the company said.

Current market conditions and access to capital in GT Advanced's markets are unlikely to improve over the next 12 months, the company's chief executive, Tom Gutierrez, said Tuesday in a conference call.

Greenbrier adds

Greenbrier's 3.5% convertibles due 2018, of which there is $230 million outstanding, traded at 96.529 versus an underlying share price of $20.12 early Tuesday. But they traded outright much later in the day at 96.223 when the stock was higher.

Greenbrier's 2.375% convertibles due 2026, of which there is only $68 million left outstanding, were heard at 99.5, and they have an upcoming put in March.

The3.5% is much longer dated and are probably trade on about a 40% delta, a market source said.

Shares of the Lake Oswego, Ore.-based supplier of transportation equipment and services to the railroad industry rose $1.40, or 7.4%, to $20.37.

With the convertibles at 96, investors are looking at getting par if the deal - which faces some antitrust issues - goes through, a buysider pointed out.

"You're not at a point where you are going to get any shares in the matrix, you're just going to get cash," the trader said.

Icahn owns about 10% of Greenbrier and is its largest shareholder. The suggested bid represents a 5.4% premium to Greenbrier's Monday close.

The Greenbrier convertibles were one of last year's new issue winners, notching a 2.5 point expansion on a hedged basis on their debut in secondary market trading.

Goodrich adds outright

Goodrich Petroleum's 5% convertibles traded up to 94.25 in active trade. Previously, the Goodrich convertibles were seen around 93.

The convertibles were 93 bid, 93.25 offered early Tuesday and traded up about a point.

Goodrich shares surged $1.01, or 12.3%, to $9.22 on Tuesday.

"They are trying to do a bunch of different things and a lot of people didn't believe it, but now that insiders bought stock, people are believing it," a New York-based trader said.

Mentioned in this article:

GT Advanced Technologies Inc. Nasdaq: GTAT

Goodrich Petroleum Corp. NYSE: GDP

Greenbrier Cos. Inc. NYSE: GBX

Jefferies Group Inc. NYSE: JEF

Prospect Capital Corp. Nasdaq: PSEC

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.