LDK adds as shares surge on raised view; Allergan steady; newish SL Green trades over par

By Rebecca Melvin

New York, Oct. 11 - LDK Solar Inc.'s convertible bonds were up and nearing par after the Chinese solar wafer maker raised its third-quarter revenue and shipment estimates on Monday. Otherwise the session was pretty quiet with the fixed income markets closed in observance of Columbus Day, market sources said.

Allergan Inc. was traded, with both buyside and sellside action keeping the 1.5% bonds pretty much in equilibrium, as the underlying shares edged up through the session.

Among other names mentioned in trade on Monday was Equinix Inc., which was lower in line with lower underlying shares after volatility the previous week. The Foster City, Calif.-based data center service provider warned last Wednesday that revenue for its third quarter and full year would be 2.2% lower and 1.2% lower, respectively.

SL Green Realty Corp., which priced a 3% convertible a week ago at a discount, remained stronger at over par after improving on Friday. The SL Green convertibles traded at 100.75 versus a share price of $65.90 on Monday, according to one sellsider. A second source called the market 100 to 100.5.

In equities, trading was light and choppy with a flat finish after spending most of the session in positive territory but with a late sell-off. The Dow Jones Industrial Average ended up 3.86 points at 11,010.34 points; the S&P 500 stock index ended up 0.17 point at 1,165.32; and the Nasdaq Stock Market was up 0.42 point to 2,402.33.

S&P tallies global issuance

Although global convertible bond deal volume year to date lags slightly compared to 2009, and converts make up a smaller percentage of overall debt issuance, the asset class has shown recent improvement and is likely to flourish in the upcoming economic environment, according to a report published Monday by Standard & Poor's Global Fixed Income Research.

Convertible deals that came to market globally in the first nine months of 2010 totaled 383, compared to 661 deals for the full-year 2009 period, Standard & Poor's Global Fixed Income Research noted.

Deal size declined to $128 million in 2010 from $138 million in 2009 and $230 million in 2008. This led to a drop in total debt volume to $49 billion in 2010 from $91 billion in 2009 and $143 billion in 2007, S&P said.

In addition, convertible debt as a share of total debt issuance is down, accounting for about 2.6% of new debt currently, compared with 2.7% in 2009, 4.2% in 2008 and 5% in 2007.

The U.S. accounts for about one-third of total issuance, which is down from about three years ago when it accounted for nearly half the volume.

Still global issuance in the convertible bond market was characterized as "robust" in 2010, compared to a strong showing in 2009, according to the S&P report called, Convertibles Merging on to the Fast Lane Globally.

Investors' appetite for convertibles will decline as gains in share prices decelerate, they said. But as the economy shows more signs of improvement, and when interest rates start to rise, demand for convertible bonds from speculative-grade entities will likely increase further.

During the economic recovery from 2002 to 2003, the share of convertible speculative-grade bonds to total global convertible issuance increased to more than 35% from just 7% in 2000.

Currently, this metric is about 25%, lower than in 2009 but significantly higher than in 2008 - when the share of convertible speculative-grade bonds declined by half.

As economic recovery strengthens, this is likely to grow further as investors increase allocation to the speculative-grade segment in general, including the high-yield convertible debt markets.

"The report looks all right," a New York-based sellside analyst said, adding that "while U.S. and E.U. new issues slow, convertible issuance in Asian Pacific is showing robust growth."

In addition, "when the Fed starts to hike, we will see more issues in the U.S. This was proved true in the last two hiking cycles," he said.

A second New York-based analyst found the report a little baffling in that it called issuance globally robust, but also described falling average deal size and found convertible debt as a share of total debt issuance in decline. "Strange combination," he said.

LDK edges toward par

LDK's 4.75% convertibles due 2013 traded at 98 bid, 98.25 offered versus a share price of $11.33, according to a Connecticut-based sellside trader.

That level is up from around 90 in August.

The American Depositary Shares of the Xinyu City, China-based company surged $1.52, or 16%, to $11.32 in heavy volume.

LDK raised its third-quarter outlook, saying that it expects to report revenue in the range of $610 million to $640 million, compared to its previous estimates of $570 million to $600 million, the company said in a news release early Monday.

At the end of September, LDK's manufacturing capacity reached 11,000 MT in polysilicon, 2.6 gigawatts (GW) in wafers, 120 megawatts in cells and 760 megawatts in modules. As of the end of the third quarter, cash balances, including pledged bank deposits, were approximately $800 million, the company said.

Although the convertibles have had a head of steam, trading up along with its underlying shares, at least one convertibles trader was not convinced.

"There's a lot of downside in this. Unless you got in in the 60s, I wouldn't buy at par," the New York-based sellside trader said.

Solar names have been hot. But Trina Solar Ltd. or Yingli Green Energy Holdings Co. Ltd. weren't heard in trade. The new UBS convertibles exchangeable for GT Solar were quoted higher though on Monday at 28.86 compared to 28 on Friday.

Allergan steady in trade

Allergan's 1.5% convertibles due 2026 were seen at 114.5 bid, 115.5 offered on Monday, according to a New York-based sellside trader.

That level was little changed to slightly weaker compared to previous levels.

Shares of the Irvine, Calif.-based health care company closed higher by 58 cents, or 0.9%, at $67.90, having gradually risen in light volume early in the session.

There was no particular news in the name on Monday.

"Some people are setting up a short; some people are covering a short," a sellsider said.

Mentioned in this article:

Allergan Inc. NYSE: AGN

LDK Solar Inc. NYSE: LDK

Equinix Inc. Nasdaq: EQIX

Saks Inc. NYSE: SKS

SL Green Realty Corp. NYSE: SLG

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