New Pattern Energy slips on swap; SanDisk mixed on earnings; Europe brings two new deals

By Rebecca Melvin

New York, July 23 – Pattern Energy Group Inc.’s newly priced 4% convertibles traded a bit higher on an outright basis but slipped on swap in active trade on Thursday after being released for secondary market action.

The San Francisco-based independent power company priced $225 million of the senior notes beyond the cheap end of talk.

The new Pattern convertibles due 2020 were quoted last at about 101 against an underlying share price of $24.25. Shares closed a bit higher, up 94 cents, or nearly 4%, at $24.64, after slumping 8% on Wednesday.

SanDisk Corp.’s convertibles were higher on an outright basis but unchanged to lower on a dollar-neutral, or hedged, basis, a New York trader said after the flash-memory-chip maker reported earnings that were better than analysts’ expectations.

SanDisk’s 0.5% convertibles were unchanged on a swap basis, and the 1.5% convertibles “came in a touch,” the trader said.

Chesapeake Energy Corp.’s convertible bonds and preferred shares “got crushed again” as oil prices fell again and commodities in general slumped amid concerns regarding global growth.

The Chesapeake 2.25% convertibles extended losses to trade at 79.5 compared to 80 on Wednesday and 88 a month ago.

The bond is now yielding 9.5%, a second New York-based trader noted.

Shares of the Oklahoma City-based oil and natural gas company fell another 34 cents, or 3.8%, to $8.71 after ebbing 2.6% on Wednesday.

Elsewhere the convertibles space was rather quiet. Wesco International Inc.’s convertibles were not heard in trade after the supplier for original equipment manufacturers reported earnings that missed estimates and lowered guidance for 2015.

“It was a tedious day. Things didn’t really move, and they haven’t. People are waiting for some price action and vol. events like earnings,” a New York-based trader said.

Late Thursday, Spectranetics Corp. reported second-quarter results that shot down its common shares in after-hours trading. The shares plunged 19%. But Proofpoint Inc. reported earnings that sent its common shares up 5% in after-hours action.

As expected, “there were not a lot of swap sellers into a potential vol. event, but these might be busy tomorrow,” a trader said.

The U.S. primary market was not able to get much traction this past week and, beside pricing of the Pattern Energy deal, remained quiet.

Internationally, two new deals launched and priced in Europe. J Sainsbury plc priced £250 million of 2.875% perpetual convertible bonds at the cheap end and toward the cheap end of talk, and Beni Stabili SpA priced €200 million of 0.875% 5.5-year convertible bonds that came near the midpoint of talk.

New Pattern slips on hedge

Pattern Energy’s new 4% convertibles due 2020 traded last at “par and 11 teenies” versus an underlying share price of $24.25, a market source said.

The paper had changed hands busily in the early going, and trading was choppy as the underlying shares moved up and down.

The bond was also quoted at 102 versus a share price of $24.25 and at 101.5 versus an underlying share price of $24.35.

The 101.5 price was said to represent a contraction of 0.875 point on a 50% hedge, a Connecticut-based trader said.

“Pattern definitely came in on swap. They seem crazy cheap to me,” one New York-based trader said at the market close.

Pattern shares rose nearly 4% on the day after dropping 8% on Wednesday.

The company priced $225 million of the five-year convertibles late Wednesday at a coupon rate that was cheaper than the 3% to 3.5% price talk. The conversion premium came at the cheap end of 22.5% to 27.5% talk.

Pattern also priced 5,435,000 class A common shares at $23.00 each for a total of $125 million.

The Rule 144A convertibles have a $33.75 million greenshoe.

Joint bookrunners were BofA Merrill Lynch, BMO Capital Markets and Citigroup Global Markets Inc.

The bonds are non-callable for life with no puts.

Proceeds of both deals are earmarked to repay a portion of the outstanding debt incurred in connection with the company’s purchase of interests in the K2, Lost Creek and Post Rock wind projects, the acquisition of non-controlling interests in the Gulf Wind project and the prepayment of Gulf Wind project level debt and for general corporate purposes.

The notes will be settled in cash or shares or a combination of both. They have dividend and takeover protection.

Pattern is a San Francisco-based independent power company listed on the Nasdaq global select market and the Toronto Stock Exchange.

SanDisk lackluster on swap

SanDisk’s 0.5% convertibles due 2020 traded up to 101.25 from about 95.75 on Thursday, which was higher outright but in line, or unchanged, on a dollar-neutral, or hedged, basis, a New York-based trader said.

The SanDisk’s 1.5% convertibles due 2017 were seen up at 137 last from about 123.35, and those bonds were seen to have come in, or contracted, on a swap basis.

Shares of the Milpitas, Calif.-based flash memory chip maker surged $9.52, or 17.6%, to $63.70.

SanDisk, which was trading actively last week amid takeover speculation that was sparked by Micron Technology Inc., reported earnings that were weaker than the year-earlier quarter but better than expected.

“Largely there were hedged sellers to outright buyers” in the early going Thursday and the 1.5% convertibles “came in a touch,” a trader said.

While the 0.5% SanDisk convertibles gained to a little more than par on an outright basis, they were unchanged on a swap basis.

Mentioned in this article:

Chesapeake Energy Corp. NYSE: CHK

Pattern Energy Group Inc. Nasdaq: PEGI

Proofpoint Inc. Nasdaq: PFPT

SanDisk Corp. Nasdaq: SNDK

Spectranetics Corp. Nasdaq: SPNC

Wesco International Inc. NYSE: WCC

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