SolarCity surges in debut; new Resource Capital slips; MolyCorp, American Realty steady

By Rebecca Melvin

New York, Oct. 16 - SolarCity Corp.'s newly priced 2.75% convertibles jumped to more than 110 on Wednesday after the San Mateo, Calif., provider of clean distributed energy priced an upsized $200 million of the five-year convertible notes at the rich end of talk.

"The stock took off. There was kind of follow-on momentum from the news of the last three weeks," a New York-based trader said.

A second trader said, "It obviously did extremely well."

But Resource Capital Corp.'s newly price 6% convertibles slipped below par and lost about 0.5 point on a dollar-neutral, or hedged, basis after the New York-based specialty finance company priced $100 million of five-year convertible senior notes at the midpoint of talk.

The Resource Capital 6% convertibles were quoted at 100.375 versus an underlying share price of $5.83 early on but ended the day at about 99.5 versus an underlying share price of $4.86, market sources said.

Overall, there was a flurry of trading activity early in the session that was focused on the two new deals but also included other names, some of which have been active for several days.

American Realty Capital Properties Inc.'s 3% convertibles due 2018 were trading actively again and little changed on Wednesday after jumping about 3 points to around 101 on Tuesday.

MolyCorp Inc. also continued trading actively after the Greenwood Village, Colo.-based rare earths minerals miner's shares and convertibles dropped Tuesday on word it expects to run at negative cash flows and will have to raise additional capital.

MolyCorp's 6% convertibles due 2017 changed hands at 76 on Wednesday, according to Trace data, after trading actively in the 74 to 78 range on Tuesday.

Equities rallied. The Dow Jones industrial average surged 205.82 points, or 1.4%, to 15,373.83; the S&P 500 stock index jumped 23.48 points, or 1.4%, to 1,721.54; and the Nasdaq stock index gained 45.42 points, or 1.2%, to 3,839.43.

The pop was based on optimism that lawmakers were going to get a debt agreement through the House of Representatives by the end of the day, sources said.

SolarCity lights up market

SolarCity's new 2.75% convertibles were trading up to 111 bid, 112 offered versus a share price of $51.65 at the end of the session Thursday.

Shares jumped $5.84, or nearly 13%, to $52.38.

The new bonds were seen up at 106 to 107 in early action and continued up to the 111 to 112 as shares zoomed higher.

About 5 or 6 points of the run up represented expansion on a dollar-neutral, or hedged, basis, assuming a delta of about 70%, market sources said.

Late bids in the issue were 110.5 versus a share price of $51.65 and also 111.375 bid.

"I think it surprised everyone a little bit," a trader said, referring to how well the new issue did.

The registered offering, which has been on the calendar since June, was upsized to $200 million from $125 million in recent days. Originally the deal was seen at a $100 million base deal size.

The securities also came concurrently with a stock deal that priced right where shares went out on Tuesday. Originally it was going to come concurrently with a stock borrow facility, but that part of the plan was scuttled.

"It was a business decision," a syndicate source said.

One trader said that momentum was behind the deal's success. Shares have been on a tear since Oct. 9 when the company significantly raised its guidance for 2014. It said deployments for next year are expected to jump to between 475 megawatts and 525 megawatts from an expected 278 megawatts of solar power products in fiscal year 2013, including 78 megawatts that it deployed during its fiscal third quarter.

Also aiding the deal's success could have been the market's overall relief rally on Wednesday spurred by expectations that lawmakers in Washington were going to be able to pass a debt ceiling deal, the trader said.

"Overlay all the stuff going on politically and that could have played a role on it," the trader said.

SolarCity intends to use the proceeds for general corporate purposes, which includes working capital, capital expenditures, potential acquisitions and strategic transactions.

The deal priced at the rich end of 2.75% to 3.25% coupon talk and 27.5% to 32.5% talk for the initial conversion premium.

Goldman Sachs & Co., Credit Suisse Securities (USA) LLC and BofA Merrill Lynch are the joint lead managers, and JPMorgan is a co-manager of the deal.

New Resource Capital slips

Resource Capital's 6% convertibles were quoted at about 99.5 versus an underlying stock price of $5.86 near the close.

Shares ended down a nickel, or 0.8%, at $5.87 on Wednesday.

Using a delta of 45%, the new bonds ended down about 0.5 point on a hedged basis, a New York-based sellsider said.

"It didn't surprise me that they traded down; no one wants financially sensitive or REIT paper," a New York-based sellsider said, referring to the company's business as a real estate investment trust.

The trader also said the underwriters' valuation of the bond, at 500 basis points credit spread and 22% vol., seemed unrealistic.

"They went out ridiculously tight," the sellsider said. He thought more realistic inputs were 650 bps over Libor and 24% vol.

He deemed NorthStar Realty Finance Corp. a reasonable comparable for Resource Capital but said NorthStar, another New York-based REIT, was better positioned. The NorthStar 5.375% convertibles due 2033, which priced in June, were seen at 103 versus a share price of $9.52 at the end of the session, he said.

Mentioned in this article:

American Realty Capital Properties Inc. Nasdaq: ARCP

MolyCorp Inc. NYSE: MCP

Resource Capital Corp. NYSE: RSO

SolarCity Corp. Nasdaq: SCTY

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