GM rises on exchange; Gilead edges up on swine flu; SunPower, United States Steel to price

By Rebecca Melvin

New York, April 27 - News that General Motors Corp. was launching an exchange offer for about $27 billion of its unsecured debt sent the Detroit-based auto maker's convertible bonds surging in heavy trading on Monday.

Gilead Sciences Inc., which developed the antiviral drug Tamiflu, saw its convertibles trade higher by about 0.5 point dollar neutral as news reports of a swine flu outbreak proliferated. There were more deaths reported in Mexico, which is suspected to be the origins of the outbreak.

Other health care names, which were seen as potentially benefiting from a pandemic health crisis, were also seen higher, although not much was trading, sources said.

"The entire space was up," said a New York-based sellside analyst, whose firm had been active early in Gilead.

"There was a lot of noise around Rite Aid and Gilead this morning, but not much traded," another New York-based sellside trader said.

Rite Aid Corp.'s 8.5% convertibles due 2015, which priced about a year ago, were seen settling at about 47.25, up from 42.3. Shares of the Camp Hill, Pa-based retail drugstore chain extended gains on Monday after surging to their highest level in more than six months in heavy trading Friday.

Also related to the swine flu news was a downturn in the stocks of travel-related industries like airlines. But UAL Corp.'s convertibles were steady despite a 14% drop in their underlying shares.

In addition, UBS downgraded UAL to "neutral" from "buy."

After the close, two new deals emerged in the primary market. United States Steel Corp. said it plans to price $300 million of five-year convertibles after the close Tuesday And SunPower Corp. said it plans to price $175 million of five-year convertibles, also after the close on Tuesday.

GM bondholders

GM's 6.25% convertibles due 2033, or the GPMs, settled higher by 0.46 or 23% to 2.45 in heavy volume.

The GM 5.25% convertibles due 2032, or the GBMs, gained 0.33, or 17%, to 1.30 in heavy volume. And the GM 1.5% convertibles due May 31, 2009, or the GRMs, which have a par of $25, added 1.54, or 32%, to 6.34 in heavy volume.

The 4.25% convertibles due 2032, or the GXMs, have only a small amount outstanding as the issue was puttable a while ago, a New York-based sellside analyst said. But they too surged by 19% to 2.85 in light volume.

"I actually haven't seen too much of the GM bonds despite the exchange offering. The offer is for significantly more than any of these bonds are trading (including accrued interest, the offer would come to more than 11 per bond)," a New York-based sellside analyst said.

GM shares driven up in a short squeeze settled at $2.04, up$0.35, or 21%.

Under the exchange offer, GM is offering to exchange 225 common shares for each $1,000 principal amount of outstanding notes.

The exchange will begin only if 90% of bondholders agree to the terms; and if GM fails to get adequate participation, it will file for bankruptcy protection.

The S-4 filing stated that the offer expires May 26; but it didn't give a commencement date.

Although the pricing is higher than where the bonds' currently trade, the deal only gives holders a 10% stake in the company, compared to the United Auto Workers union and the federal government, which would wind up with an 89% stake in GM, for exchanging a combined $20 billion of their debt. Because of the inequity, analysts suspect that the exchange offer will fail.

Gilead adds on potential swine flu demand

Gilead's 0.50% convertibles due May 2011 traded at 130 and 130.5 and was seen as high as 131 versus $48 in early trade, according to one sellsider.

That was up about 0.5 point, a sellsider said. "Most of the incremental news out is saying it's not as bad as SARS."

The death toll from the swine flu in Mexico rose to about 150 from 100 by late Monday, The Associated Press reported. There have been no fatalities reported elsewhere, including the United States.

United States Steel, SunPower to price

In the convertibles primary, United States Steel is planning to price five-year convertibles, non-callable for life, to yield 4% to 4.5% with an initial conversion premium of 20% to 25%.

The Pittsburgh-based integrated steel producer is also going to price 18 million shares of common stock.

J.P. Morgan Securities Inc., Morgan Stanley & Co. Incorporated and Merrill Lynch, Pierce, Fenner & Smith Inc. are joint bookrunners for the common stock offering.

For the convertible note offering, J.P. Morgan Securities Inc., Morgan Stanley & Co. Inc. and Goldman, Sachs & Co. are joint bookrunners.

The company plans to use proceeds from the registered offerings to repay amounts outstanding on a $500 million three-year term loan due 2010. Any remaining proceeds will be used to repay a $500 million five-year term loan due 2012 and for general corporate purposes.

SunPower also plans to price five-year convertibles, non-callable for life, after the close on Tuesday. Its talked terms were also similar to United States Steels, although slightly more favorable for investors.

The notes were talked to yield 4.5% to 5% with an initial conversion premium of 17.5% to 22.5%.

SunPower is also planning to price an issue of common shares. And it will undertake hedge and warrant transactions.

Credit Suisse Securities (USA) LLC and Deutsche Bank Securities Inc. will serve as joint bookrunning managers for the offerings.

SunPower is a San Jose, Calif.-based maker of solar cells, solar panels and solar systems.

SunPower plans to use $20 million to $22 million of proceeds to pay the cost of the hedge and warrant transactions. Remaining proceeds are expected to be used for general corporate purposes, including working capital, capital expenditures and acquisitions or transactions.

It plans to use a portion of proceeds to repurchase some of its outstanding 1.25% debentures or 0.75% debentures. It will also use proceeds for general corporate purposes, including working capital, capital expenditures and potential acquisitions or transactions.

Mentioned in this article:

General Motors Corp. NYSE: GM

Gilead Sciences Inc. Nasdaq: GILD

Rite Aid Corp. NYSE: RAD

SunPower Corp. Nasdq: SPWRA

UAL Corp. Nasdaq: UAUA

United States Steel Corp. NYSE: X

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