Planned Trina deal in focus; Ford comes in 0.25 point on hedge; Red Hat launches deal

By Rebecca Melvin

New York, Sept. 30 – Trina Solar Ltd.’s planned $100 million of five-year convertibles were in focus early Tuesday as traders valued the deal ahead of terms set to be fixed after the market close.

The Trina deal was seen about fair value using a hefty credit spread of 1,000 basis points over Libor and a 45% vol., a New York-based trader said.

Hedged players were expected to be limited by tight stock borrow even though the deal was coming with a stock borrow facility.

“A select few will have access to the special borrow facility offered by the leads,” the trader said.

Trina’s existing 3.5% convertibles were not seen in trade, a second New York-based trader said.

Shares of the Changzhou, China-based maker of solar-power products dropped 81 cents, or 6%, to $12.39 in the early going.

Elsewhere the market was mostly for sale heading into month- and quarter-end, sources said.

Intel Corp.’s 3.25% convertibles due 2039 were atop the Trace volume charts amid no particular news for the chip giant. Intel shares were little changed.

The Intel 3.25% convertibles, a large $2 billion deal priced in 2009, traded down nearly 2 points at 166.5.

Ford Motor Co.’s convertibles were pulled into trade at lower levels, with shares of the Dearborn, Mich.-based automaker down after lowering full-year guidance on Monday. The Ford 4.25% convertibles due 2016 came in about 0.25 point, a New York-based trader said.

After the market close, Red Hat Inc. launched an offering of $700 million of five-year convertible senior notes that the Raleigh, N.C.-based open-source software provider planned to price after the market close Wednesday.

The deal was looking a bit rich at the midpoint of talk, but the company represents a strong credit, so it was expected to get a positive reception in the market.

Overall, however, convertibles continued to weaken as a liquidation in high yield and convertibles continued.

“Things were for sale; it was the continuation of the trend,” a New York-based trader said.

“There was some stability of index credit, but cash markets on high yield and converts were seeing liquidation,” the trader said.

There were some big bid wanted in competition lists, and things were going lower.

An early bounce in high-yield debt faded as the day went on.

The day’s tone was a continuation of Monday’s, which was “not a trade-friendly day,” a trader said.

Even if convertibles were not the source of pain, there are high-yield components of most desks that have suffered. As for the Pimco debacle on the news that bond king Bill Gross has left the company, there may be ramifications for the convertibles market, as Pimco may be looking to pare down.

Ford comes in

Ford’s 4.25% convertibles due 2016 traded late in the session at 171, which was down about 4 points on the day, according to Trace data. The move wasn’t as severe as an early Tuesday trade that was down nearly 7 points to 168.75 for that bond.

The 2016 bonds came in about 0.25 point on a dollar-neutral basis though as shares ended down 32 cents, or 2%, at $14.79, extending a 7.5% drop to $15.11 on Monday.

Ford’s 4.25% convertibles due 2036, of which there is not much left outstanding, traded at 175.00 during the session.

Ford told investors on Monday that it now expects to report pretax profit this year of between $6 billion and $7 billion, which is down about $1.5 billion from what was forecast in July.

The company also outlined upcoming recalls and issues with some of its international markets including Russia.

Red Hat looks rich

Red Hat’s planned $700 million of five-year convertible senior notes looked a little rich at first glance based on price talk for a 0% to 0.25% coupon and a 32.5% to 37.5% initial conversion premium, traders said.

The underwriters were going out with valuation inputs of 100 basis points over Libor for the credit spread and 30% vol.

Traders said 30% vol. was too high.

But using 100 bps over Libor and a lower 25% vol. got the deal 2 points rich at the midpoint of talked terms, a Connecticut-based trader said.

Nevertheless, the fact that the company is BBB rated means that investors of investment-grade credit will be interested in this deal, and it “will probably do OK,” the trader said.

The Rule 144A deal has a $105 million greenshoe and was being sold via joint bookrunners Morgan Stanley & Co. LLC, BofA Merrill Lynch, Citigroup Global Markets Inc., J.P. Morgan Securities LLC, Barclays, Goldman Sachs & Co., RBC Capital Markets LLC and Wells Fargo Securities LLC.

The bonds are non-callable for life, with no puts. They have standard dividend and takeover protection. They will be settled in cash, stock or a combination of both.

Mentioned in this article:

Ford Motor Co. NYSE: F

Intel Corp. Nasdaq: INTC

Red Hat Inc. NYSE: RHT

Trina Solar Ltd. NYSE: TSL

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