Skyworks deal screams higher; chase on for utility, tech paper

By Ronda Fears

Nashville, Nov. 6 - Although skeptics are still out there, the gains seen over the last month or so have triggered a chase for tech and utility paper - the issues most trampled, which also have the most to gain.

Also, Skyworks Solutions Inc.'s overnighter, which priced 5% to nearly 7.5% cheap, screamed up 13.5 points from par. The gutsy deal, marketed on the eve of the Federal Open Market Committee meeting, was even upsized.

The Federal Reserve's surprise with a bigger cut in interest rates than expected was mostly interpreted as a negative event but was offset by Republicans winning control of Congress, which is seen as a plus for President Bush's economic stimulus plans.

"This rally still has its skeptics," said Jeremy Howard, head of U.S. convertible research at Deutsche Bank Securities Inc. "But it feels a lot better."

There have been spikes at various intervals earlier this year, but none have seemed to have the steam to push the market higher for an extended period.

The Fed's decision upset the market, because a lower rate hike was expected than the 0.5 point move, however.

"I think people initially were unsure as to which way to go," after the Fed decision, Howard said.

"The fact that it was a 12-to-0 vote for a half point could be alarming to some people."

But, he added, the Republican win in the midterm elections is expected to give support to Bush's plans.

Moreover, he said, there already was a fundamental asset allocation shift away from bonds into equities under way that was benefiting convertibles.

Credit spreads also continued to tighten for several convertible names, although traders said the bond markets were rocked by the Fed move and trading was thin on those desks.

"The bond guys were really caught off guard by this [the Fed move]. They were collectively in shock it seemed," said a convertible trader at a hedge fund in New York.

The situation made Skyworks' launch of an overnighter Tuesday a brave move, but in hindsight it looks remarkably smart given the sharp gains seen in tech names.

Or it was a matter of luck for the wireless semiconductor company that is the product of Conexant Systems Inc.'s spin-off of its wireless unit, which merged with Alpha Industries Inc. in June.

In any event, Skyworks priced $200 million of five-year convertible subordinated notes, upsized from $160 million. The coupon came at 4.75%, the midpoint of talk, and the 15% initial conversion premium was at the cheap end of guidance.

Cheapness and the bullish trend in techs both helped Skyworks.

Wachovia Securities, Inc. convertible analyst Kimberlee Brody put the deal 7.4% cheap, using a credit spread of 1,300 basis points over Treasuries and 55% volatility.

Deutsche put it 4.9% cheap, using 1,300 basis points over Libor and 50% volatility.

The issue was quoted 2.25 points to 3.25 points over par before the open and ended the day at 113.5 bid, 114.5 asked.

Skyworks shares closed up 34c to $8.24.

The deal appeared to be priced to sell with the stock lower, sources said, which is why it modeled out so cheap.

People are chasing techs, particularly computer-related issues, and utilities now that there is more trust that a rally will be sustained.

"At the moment, the best things to be in are what were the worst six months ago," Howard said, because those have the most to gain.

Computer Associates Inc. was a noteworthy gainer in the tech group.

The 5% convertible due 2007 gained about 2.5 points to 104.625 bid, 105.625 bid, according to one dealer. Another shop quoted the paper at 105 bid, 105.625 asked.

Computer Associates shares ended up $1 to $16.10.

Agere Systems Inc. also was a big winner, traders said, but talk circulating about a reverse split in order to remain listed may restrict any more gains.

The 6.5% convertible due 2009 was quoted up about 2 points to 79.875 bid as Agere shares closed up 25c to $1.50.

SanDisk Corp. was also higher on a research note out of Salomon Smith Barney's convertible group, traders said. (See related story elsewhere in this issue)

The 4.5% convertible due 2006 were quoted up 5 points to 142.875 bid, 143.875 asked.

SanDisk shares ended up $1.14 to $21.40.

Bigger gains were seen in a couple of beaten-down utility names.

Calpine Corp. and Mirant Corp. both rose sharply as investors rushed to get in early on anticipated gains.

The Calpine 4% convertible due 2006 was quoted up 3.5 points to 43.75 bid, 44.25 asked. The 8.5% junk bonds were seen up 3 poitns to 37.75 bid, one trader said.

Calpine shares closed up 82s to $3.61.

Mirant's 5.75% convertible due 2007, issued earlier this year at par although it quickly sank, was quoted up 6 points to 58.5 bid, 60.5 asked as the stock gained 64c to $2.94.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.