Solectron $450 million convertible talked at 0.5%-1.0% yield, up 38%-43%

By Ronda Fears

Nashville, Feb. 9 - Solectron Corp. launched $450 million of 30-year convertible notes talked to yield 0.5% to 1.0% with a 38% to 43% initial conversion premium for pricing after the close Monday.

Joint bookrunners are Morgan Stanley & Co., Goldman Sachs & Co. and JPMorgan Securities.

The Rule 144A senior notes will be non-callable for seven years with puts in years seven, 10, 15, 20 and 25. There also is a 120% contingent conversion trigger.

Holders will have full dividend protection.

Solectron plans to use proceeds to repurchase and repay outstanding unsubordinated debt. Analysts expect the proceeds are to possibly help fund a portion of the May 2004 put on Solectron's 0% convertible, estimated at a $953 million obligation.

The Solectron 0% due November 2020 is putable in May at 58.746, which traders said is about where the convertible has settled at over the past several months because of the upcoming put. Solectron also has a 0% convertible due May 2020, which is putable in 2010.

Solectron's 7.25% mandatory convertible due 2004 was down 0.5 point to 0.625 point in the 19 to 19.25 area.

Standard & Poor's assigned a B+ rating to the new convertible, with a stable outlook, and affirmed Solectron's other ratings. S&P noted Solectron has a leveraged financial profile and subpar operating profitability relative to peers in the electronics manufacturing services industry despite several restructuring efforts.

Fitch Ratings assigned a BB- rating to the new convertible, with a negative outlook. Fitch noted constrained credit protection measures, weak operating margins and challenging but improving demand in its key end markets. The outlook reflects execution risk related to Solectron's ongoing restructuring program and pending asset divestitures plus uncertainty related to recovery in IT spending.

Solectron's most recent restructuring effort focuses on a 20% reduction in manufacturing facilities, a 16% headcount reduction and the sale of several noncore businesses, with proceeds chiefly going to reduce debt.

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