Coinstar, Jaguar, Photronics to price deals, snapping new issue drought; techs add; REITs up

By Rebecca Melvin

New York, Sept. 9 - A five-week drought in U.S. convertible new issuance came to an end Wednesday with the launch of three new deals after the market close, with pricing seen all of them after the close on Thursday.

Coinstar Inc. announced an offering of $175 million of five-year convertible senior notes; Jaguar Mining Inc. said it was going to sell $110 million of five-year convertible notes; and Photronics Inc. planned to price $50 million of five-year notes.

The deals are the first in the U.S. convertible market since Onyx Pharmaceuticals Inc. and Rayonier TRS Holdings priced $230 million and $172.5 million of convertible deals on Aug. 6.

Although the planned new issues are small in size, they are a welcome sight as primary activity is considered a necessary catalyst to get the market going again, sources said.

"Hopefully there will be issuance. You look at all those companies were out there issuing straight debt in August, and what are you going to do?" a New York-based sellside trader said.

In the secondary market, several technology names were big movers on Wednesday.

Advanced Micro Devices Inc. extended gains in what appeared to be follow-through trade after news on Tuesday that GlobalFoundries, an AMD joint venture, is acquiring Chartered Semiconductor Manufacturing Ltd.

SanDisk Corp. convertibles added about a point in trade to 77. Its shares climbed 6% on an upgrade to "buy" from Deutsche Bank.

Tech Data Corp. was also higher in trade as its stock ran up in early activity.

Elsewhere, quality real-estate-investment trust names were higher, with many more buyers than sellers driving up prices.

Among REIT names seen changing hands were Boston Properties Inc., ProLogis and Vornado.

Two or three deals eyed

Ahead of the end of the session, several sources were anticipating two or three new deals being launched after the close, which did in fact occur as predicted.

"It's a function of how the equity performs. I know of some deals coming to the market. We will see a couple of deals coming tonight," a New York-based origination source said, predicting that the new issue market will improve, but not by as much as the $20 billion of new issuance before year's end that some firms have predicted.

A couple of factors have been crimping primary volume including strength in the high-yield market and weakness in equities.

"High yield improved much more than convertibles in terms of relative value," the origination source said.

If the issuer has access to high yield that's the way they have been going, he said.

"Size is also an issue. I know a company that has high yield and convertibles outstanding, but they wanted to raise $200 million, and they could do that much more easily in the high-yield market," the source said.

Another big driver is stock price. Potential issuers don't want to consider potential dilution at current stock valuations.

"For WPI [Watson Pharmaceuticals Inc.] it made no difference. They didn't want additional stock out there because they already issued stock," a New York-based sellsider said.

If convertibles are going to compete with the higher value found in high yield right now, then pricing is going to have to get more aggressive, the origination source said.

"We're going to have to see valuations in the convertible market continue to improve. High 4 to low 5 [coupons], up 20 to 25 [premiums], isn't going to get it done. It's going to have to be 3%," the source said.

AMD, SanDisk, Tech Data gain again

Although shares of AMD pulled back a little bit after spiking Tuesday on news of the Chartered acquisition, the convertibles of the Sunnyvale, Calif.-based chip company continued to improve.

Advance Micro's 6% convertibles due 2015 traded up to 69 bid, 70 offered, compared to 68 on Tuesday.

Barclays Capital put out a note on the company Wednesday, saying that as the macro environment has stabilized, the outlook on the availability of liquidity to AMD has improved.

"Moreover, ATIC's recent bid for Chartered Semiconductor, improved sector sentiment on the back of Intel's recent upward revision in earnings guidance, and improved company outlook on expected new product launches later this year, have improved the fundamental outlook on AMD going forward," the Barclays note read.

"In this context, we look at what we regard as the two major risk factors for AMD over the near term: the Intel cross licensing agreement and liquidity. We find that the risk to the company from both these sources appears manageable. Consequently, we expect the current relatively flat credit term structure to steepen between the three- and five-years points going forward and therefore recommend going long shorter maturity 5.75% due 2012 convertible bonds (YTM of 13.5%, 2.9 years to maturity)," Barclays analysts said.

Backing their premise, they cited AMD's products slated for release across its major segments, including Notebooks (Tigris, Congo), Servers (Istanbul) and Graphics (DX11).

"This is expected to support margins and revenues going forward," the analysts said.

On the licensing front, Intel and AMD have renewed cross-license agreements which enable them to use some of each other's technologies in their products. The last cross-licensing agreement was signed in 2001 and comes up for renegotiation in 2011.

"Since the spinoff of GF, Intel and AMD have been involved in a dispute about the transferability of the cross-licensing agreement to GF. Intel claims that under the terms of the agreement, GF is not a subsidiary of AMD and therefore is not authorized to manufacture products using technologies patented by Intel."

SanDisk's 1% convertibles due 2013 traded at 76.5, according to a sellsider, and later the paper was seen at 77 as the Milpitas, Calif.-based flash memory maker saw its shares gain $1.11, or 6%, to $19.32.

Meanwhile, Tech Data 2.75% convertibles due 2026 were seen at 101.44 versus $41.26 near the end of the session.

REITs strengthen on short supply

REITs were also a popular sector on Wednesday, with price gains supported in part by the issuers buying back their own convertibles.

"We are seeing them trade up. All the REITs are just to buy. Companies are buying them back in any size they can find. We are running out of paper," a New York-based sellside trader said.

"They are to buy, to buy, to buy. Everyone wants to own them, and if you own them, people don't want to sell them," the sellsider said.

Mentioned in this article:

Advanced Micro Devices Inc. NYSE: AMD

Boston Properties Inc. NYSE: BXP

Coinstar Inc. Nasdaq: CSTR

Jaguar Mining Inc. NYSE: JAG

Photronics Inc. Nasdaq: PLAB

ProLogis NYSE: PLD

SanDisk Corp. Nasdaq: SNDK

Tech Data Corp. Nasdaq: TECD

Vornado NYSE: VNO

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