Suntech Power active at 30 as potential default looms; Charles River pops; Salesforce quiet around par

By Rebecca Melvin

New York, March 14 - Convertibles players eyed options plays and maintained their focus on name-specific situations in the face of the most obvious ongoing feature of the markets - rising stocks.

The Dow Jones industrial average notched a 10th straight gain, adding 83.86, or 0.6%, to 14,539.14, another record high. And the S&P 500 stock index is also poised to join the trend, closing just a few points shy of a record, up 8.71, or 0.6%, at 1,563.23.

Suntech Power Holdings Co. Ltd.'s 3% convertibles were notably active and trading pretty much in line with where they had been - at around 30 - ahead of the bonds' maturity Friday, which threatens to throw the China-based solar power company into default and or bankruptcy. Suntech Power shares plunged 19% on those fears.

After the market close, Suntech issued a statement that it plans to work with holders to achieve a consensual restructuring of the notes and won't make a payment on Friday.

Charles River Laboratories International Inc.'s 2.25% convertibles, which have an upcoming maturity June 15, jumped as the underlying shares of the Wilmington, Mass.-based medical research services company continued higher for much of the session and as the convertibles' conversion price comes within striking distance.

EMC Corp.'s convertibles, which have an upcoming maturity on June 1, were higher in line with the underlying shares, which gained after news that EMC and VMware Inc., of which EMC owns 80%, plan to form a separate group of businesses into a new Web-focused software company with an eye toward eventually taking it public.

Surprisingly quiet was the $1 billion Salesforce.com Inc. issue of 0.25% convertibles, which debuted in the convertibles market on Wednesday. On Thursday, the issue was "wrapped around par" but mostly quiet.

"The $1 billion deal disappeared," a New York-based trader said, adding that the only thing he saw on it all day was a bid wanted on the old ones.

The new Salesforce deal was pretty richly priced and slipped below par on its debut. The older Salesforce 0.75% convertibles are way in-the-money and due in 2015 after $575 million of the notes priced in 2010.

Meanwhile, Iconix Brand Group Inc.'s 1.5% convertibles, of which $350 million debuted on Wednesday, were heard changing hands at 104.5 in the early going Thursday, which was up about 0.5 point from Wednesday's close. Shares were little changed to higher early on.

Overall, the market was described as quiet. Convertibles players watched equities creep higher and were poised to buy new paper if more issuers were enticed to step up to raise capital with their shares at currently high levels. No new issues were launched after the market close.

In economic data, the weekly number of U.S. workers filing new applications for benefits fell more than economists forecast, declining 10,000 to a seasonally adjusted 332.000 for the week ended March 9. The four-week moving average of jobless claims sank to 346,750, the lowest level since March 2008.

Suntech active, steady

Suntech Power's 3% convertibles due on Friday traded around 30 on Thursday, which is where they had been after dropping from about 40 at the beginning of March and from 55 ish in January.

Suntech Power shares fell 16 cents, or 19%, to $0.67.

Traders were uncertain what the company was going to do about the $541 million principal payment due on March 15.

"It's a weird situation. We don't know whether they or going to file or not; but it looks like they are going to default tomorrow," a New York-based trader said.

The company said on March 11 that about 60% of bondholders had agreed to wait until May 15 before exercising their rights for repayment. But traders pointed to the fact that the prospectus didn't allow for such a delay without the consent of all holders.

"They said they have 60 days forbearance given 60% of bondholder approval, but they can't do that. Some guys are going to want their money," the trader said.

After the market close, Suntech power referred to the forbearance agreement with holders of over 60% of the convertible notes and said that it was not aware of any pending or planned actions or claims in relation to non-payment.

The release stated, "As previously disclosed, the company plans to continue to work with holders of the notes with a view of achieving a consensual restructuring."

Charles River pops

Charles River's 2.25% convertibles due June 15 traded up to 102.75 on Thursday, which was up from about 100.5 on Monday. The notes trade on an outright basis.

Charles River shares were higher for most of the session but slipped into the close, ending the session down 11 cents at $45. 68. The conversion price on the 2.25% convertible is $48.94.

The stock has been "on a tear" for the last two weeks, and the convertibles began to look interesting about a week and a half ago, a New York-based trader said.

"It's getting close to the strike and has a 7% premium now," the trader said "It's been a name on our radar. We didn't want to do anything because the credit is not fantastic. But guys are looking at it now: it's a nice option play."

Other names that have come in to focus given the rising tide of equities include Archer-Daniels-Midland Co. Its convertibles traded up above 101 on Thursday.

Mentioned in this article:

Archer-Daniels-Midland Co. NYSE: ADM

Charles River Laboratories International Inc. NYSE: CRL

EMC Corp. NYSE: EMC

Iconix Brand Group Inc. Nasdaq: ICON

Salesforce.com Inc. NYSE: CRM

Suntech Power Holdings Co. Ltd. NYSE: STP

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