GT Advanced Technologies lifts despite lower shares; Navistar drops; Amgen, Gilead active

By Rebecca Melvin

New York, Sept. 25 - GT Advanced Technologies Inc.'s newly priced 3% convertibles traded up on their debut in the secondary market on Tuesday despite lower underlying shares that slumped further going into the close along with the broader equity markets.

The upsized GT Advanced deal closed at 101 versus an underlying share price of $5.64, after trading earlier at 102, and having priced late Monday at the rich end of talk, a syndicate source said.

"The equity market softened up a bit at the end of the day. There was nothing specific to the deal; the bonds did well," the syndicate source said.

Aside from the flurry of activity in the new GT bonds, which accounted for some 30% of volume, according to Finra's Trace data, a New York-based trader said, there was slim pickings in the secondary convertible market.

"It was another dead one. People are probably leaving after lunch for the holiday," a Connecticut-based sellsider said, referring to Yom Kippur, the Jewish holy day that begins Tuesday evening and ends Wednesday evening.

But at the end of the session, convertible trading volume jumped. Navistar International Corp. was one of those active names, a trader said. And the paper fell with the underlying shares of the Lisle, Ill.-based truck and engine maker.

Navistar's 3% convertibles due 2014 traded down about 4 points to 89.75, according to Trace data.

Also trading on weaker shares were the 1% convertibles due 2013 of Midwestern-based communications parts supplier Anixter International Inc., he said. Micron Technology Inc. and Cemex SAB de CV were also in trade on weaker shares.

But on the upside, the convertibles of Amgen Inc., which were very active Monday, remained active on Tuesday, adding with the underlying shares of the Thousand Oaks, Calif.-based biotech giant, which outperformed the overall equity market, ending up 90 cents, or 1%, to $83.81. The Amgen bonds were seen at 111.

Gilead Sciences Inc. was also in trade, with all three sister issues of the Foster City, Calif.-based biopharmaceutical company ending just slightly to 2 points higher with shares that traded up during the session but faded into the close to end little changed.

New deals help

The faster pace of new deals that the market has been seeing this past month has resuscitated the market to a degree but hasn't been a defibrillating jolt.

"It doesn't hurt, and the deals that have come have all done fine," a West Coast-based trader said.

A New York-based convertibles strategist echoed the sentiment, saying, "The new deals seem to be going generally very well, reflecting a demand for paper, and the fact that the new deals are generally being priced somewhat cheaper than the secondary market," adding that performance has been dependent on the underlying stock to varying degrees.

"It is definitely encouraging," he said.

The new GT Advanced convertible, for example, "was definitely priced attractively and was well oversubscribed. The risk/reward profile of the convert is a perfect fit for this kind of stock, which is volatile, but generally profitable with a reasonably solid balance sheet," the strategist said.

As for why convertible issuance has been so depressed for the last year or more, and whether the trend is turning a corner, market players remain uncertain. They cite new accounting treatment and stock-dilution fears for holding back new issuers.

"It's a less attractive form of issuance; high yield is easier, and people are scared of dilution. But converts have the advantage of a future exit strategy, lower interest and options," he said.

"If I was a company and I was not dilution sensitive, I would be doing converts all day long," he said.

Some recent deals have had very high premiums, like Toll Brothers Inc. with its 50% premium, which mitigates dilution fears.

GT Advanced advances

GT Advanced's new 3% convertibles due 2017 traded up to a solid 102 despite an immediate slide in the underlying shares after the market open on Tuesday.

The paper traded at 102.119 versus an underlying share price of $5.77 during the session and closed at 101 versus an underlying share price of $5.64.

Shares of the Merrimack, N.H. -based solar equipment provider lost 28 cents, or nearly 5%, to $5.6478.

The shares dragged lower into the close, but the convertibles, which were upsized to $205 million from $175 million, still ended above par. A dollar-neutral, or hedged, value was unavailable from sources.

"The GTATs looked cheap," a West Coast-based convertibles trader said.

The new deal was also active, having seen more than $100 million of the new issue change hands by mid-afternoon, a New York-based trader said.

The provider of solar and LED equipment and services priced an upsized $205 million of five-year convertible senior notes to yield 3% with an initial conversion premium of 30%.

The greenshoe was downsized to $15 million from $26.25 million.

UBS Investment Bank, Bank of America Merrill Lynch and Credit Suisse Securities (USA) LLC were the joint bookrunners. RBS Securities Inc. was the joint lead manager, and Santander was a co-manager.

The bonds have contingent conversion if the price of shares is 130% of conversion for 20 out of 30 trading days.

The bonds are non-callable with no puts; and the company also entered into convertible note hedge and warrant transactions, or a call spread. The strike on the warrants boosts the initial conversion premium of the bonds from the issuer's perspective to 67.5%.

The bonds also have takeover protection.

Proceeds will be used for general corporate purposes, which may include acquisitions, repayment and refinancing, working capital and capital expenditures. Proceeds will also fund the call spread.

Mentioned in this article:

Anixter International Inc. NYSE: AXE

Amgen Inc. Nasdaq: AMGN

Cemex SAB de CV NYSE: CX

Gilead Sciences Inc. Nasdaq: GILD

GT Advanced Technologies Inc. Nasdaq: GTAT

Navistar International Corp. NYSE: NAV

Micron Technology Inc. NYSE: MU

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