New SunEdison trades in line, then slips; SanDisk, Xilinx edge up on hedge after earnings

By Rebecca Melvin

New York, Jan. 22 – SunEdison Inc.’s new 2.375% convertibles traded in line with their underlying shares early Thursday but weakened by about 0.5 point dollar neutral late in the session as shares pulled higher in tandem with a broad-based market rally.

The St. Peters, Mo.-based solar technology company priced an upsized $400 million of the 7.25-year senior notes at the midpoint of talked terms. The deal’s inability to remain in step with higher shares was attributed to the high amount of SunEdison convertible paper currently outstanding after the company’s four deals priced in the last 13 months. Also, this one is the longest dated of the group.

Elsewhere SanDisk Corp.’s convertibles expanded on a hedged basis with shares lower after the Milpitas, Calif.-based data storage chip company warned that current-quarter and full-year revenue will be lower than expected amid a supply constraint, which also hurt the most recent quarter.

Xilinx Inc. also traded down on an outright basis but was better on a dollar-neutral basis by 0.25 point to 0.5 point after the San Jose, Calif.-based programmable chipmaker warned current quarter results will be lower than expected and reported mixed results for the just-completed fiscal third quarter.

The Xilinx 2.625% convertibles due 2017 fell 7.16 points to 138.27, according to Trace data.

FXCM Inc. was a bit stronger, changing hands at 60, compared to 58 bid, 60 offered on Wednesday, with shares up more than 60 cents, at $2.95, a New York-based trader said at late morning. The bonds were last quoted at 62 with shares even higher at $3.10.

In economic news, the European Central Bank announced a quantitative easing program that was more aggressive than expected. The news sent the euro sharply lower, and U.S. stocks rallied while Treasury yields slipped.

Under the long-anticipated ECB QE program, the bank will buy €60 billion per month of euro zone sovereign debt starting in March and running until September 2016. The originally talked program was for €50 billion a month for a year.

ECB president Mario Draghi said that bond purchases might extend beyond September 2016 if there are not clear signs that the annual rate of inflation is rising toward the bank’s 2% target.

Investors were closely watching this development, which sent U.S. indexes back into the green for the year. The S&P 500 stock index gained 31.03 points, or 1.5%, ending at 2,063.15. The Dow Jones industrial average rose 259.70 points, or 1.5%, to 17.813.98, and the Nasdaq stock index gained 82.98, or 1.8%, to 4,750.40.

New SunEdison down on hedge

The new SunEdison 2.375% convertibles were seen last at 101 bid versus an underlying share price of $19.22. That was lower on a dollar-neutral basis by about 0.5 point, a New York-based trader said.

Earlier in the session, the new notes were quoted at 100 versus a share price of $18.70. The new notes also traded at 101.25 with the underlying shares higher at $18.90, and when the shares went negative, the market in the new notes was quoted at 99.75 bid, 100.25 offered.

“We call this a ‘non-event,’” a New York-based trader said of the new deal’s “in line” debut action.

But later, when SunEdison shares rose with a general rally in equities, the bonds didn’t keep pace. The SunEdison shares closed up 51 cents, or 2.7%, at $19.21.

In addition, the older SunEdisons appeared to be flat to a touch weaker. The SunEdison 0.25% convertibles due 2020 traded at 94 in the early going, which was down a nickel, according to Trace data.

The SunEdison 2.75% convertibles due 2021, or the Bs, changed hands at 144.9, which looked in line with where the underlying shares were trading.

The SunEdison convertible bond offering was par bid in the gray market, even though the deal was worth more, according to at least one valuation.

The new paper represents SunEdison’s fourth convertible bond deal priced in a little more than a year.

In June, the company priced $600 million of 0.25% convertibles due 2020, and in December 2013, the company priced $600 million of 2% convertibles due 2018 and $600 million of 2.75% bonds due 2021.

There’s “too much SUNE paper, and this one sits at the back of the line,” a trader said.

SanDisks improve on hedge

SanDisk’s 1.5% convertibles due 2017 traded actively and were last seen at 159.60, which was little changed from a previous level. But intraday, the 1.5% convertible traded down to 153 when shares were lower.

SanDisk’s 0.5% convertibles due 2020 ended around 107, which was down nearly 2 points.

SanDisk shares ended down $1.54, or nearly 2%, at $78.90. But intraday the shares had slipped as much as 7.6%.

The SanDisks “were both better by 0.5 point on a dollar-neutral basis,” a New York-based trader said.

The company admitted that its fourth-quarter results were disappointing, hurt primarily by supply constraints. But chief executive officer Sanjay Mehrotra also said in the company’s release, “We believe that NAND flash industry fundamentals are healthy, and we expect our financial results to improve as we move through 2015.”

That said, the company forecast revenue of $1.4 billion to $1.45 billion for the current quarter and between $6.5 billion and $6.8 billion for the year, which fell short of analysts’ estimates for $1.6 billion in revenue for the current quarter and $7.23 billion for the year.

For the fourth quarter, SanDisk reported net profit of $201.9 million, or 86 cents per share. Excluding items, the company earned $1.30 per share, which missed estimates for earnings of $1.35 per share.

Revenue was $1.74 billion, which also missed estimates for revenue of $1.75 billion.

Xilinx down outright

Xilinx’s 2.625% convertibles due 2017 were quoted at 138.5 bid, 139 offered at the close versus an underlying share price of $38.96.

That was down about 6 points on an outright basis from 145, but Xilinx shares ended down $2.60, or 6.3%, and the bonds were said to have gained 0.25 point to 0.5 point on a hedged basis, a New York-based trader said.

There was Street activity in the $520 million issue priced in June 2010, although his firm hadn’t been active in the bond, the trader said.

The chipmaker’s third-quarter earnings fell to $168.5 million, or 62 cents per share, compared to $175.9 million, or 61 cents per share, in the year-earlier period. The company also said that current quarter sales are expected to be 2% lower, contrary to expectations.

The result was hurt by disappointing sales from broadcast and communications end markets, the company said.

Mentioned in this article:

FXCM Inc. Nasdaq: FXCM

SanDisk Corp. Nasdaq: SNDK

SunEdison Inc. Nasdaq: SUNE

Xilinx Inc. Nasdaq: XLNX

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