SunEdison gaps lower again; new Black Hills mandatory looks cheap; Clovis slide continues

By Rebecca Melvin

New York, Nov. 17 – Outsized losses in SunEdison Inc. continued to mount on Tuesday, hitting the convertibles market hard. The SunEdison D tranche fell to about 36 from 40 on Monday and down from about 46 last week when the St. Peters, Mo.-based solar technology company released third-quarter results that gave investors another look into troubling financials.

The SunEdison 2% convertibles that mature in 2018 fell to 47 on Tuesday from about 56 on Monday and down 42% from the end of October, when the bond was at 81.

SunEdison shares plunged again, dropping another $1.50 to about $3.05 as energy prices came off and amid headlines regarding sales of SunEdison stock by hedge funds and after Vivint Solar Inc., the company it plans to acquire, reported disappointing results.

Clovis Oncology Inc.’s convertibles extended losses after plunging by about 100 points on Monday. The Boulder, Colo.-based biotechnology company had announced that regulators have asked for more clinical data on its rociletinib lung cancer treatment.

The Clovis 2.5% convertibles due 2021 fell to about 78 early Tuesday, which was down from 80 or 81 on Monday and down from 180 on Friday.

Clovis shares were down another $3.41, or 11% to $26.83, after crashing 70% on Monday.

The bonds were seen to have contracted by 0.625 point to a point on Tuesday, market sources said.

On Monday, the 100-point or so drop represented a 1- to 2-point expansion on swap.

In the primary market, Black Hills Corp.’s planned $260 million mandatory convertible, which was slated to price after the market close, looked to be about 2% cheap at the midpoint of talk, a Connecticut-based sellsider said.

The $50 par units were talked at a 7.5% yield and a 20% initial conversion premium at the midpoint. The deal was pricing concurrently with a $240 million offering of common stock.

Shares of the Rapid City, S.D.-based energy company fell $4.44, or 10%, on the heels of the deal launch to $40.25 on Tuesday.

In the broader markets, equities closed narrowly mixed. In economic data, U.S. consumer prices in October added after two down months, supporting expectations for a Federal Reserve rate rise in December.

The U.S. Labor Department said its Consumer Price Index rose 0.2% last month, reversing September’s 0.2% drop. In the 12 months through October, the CPI gained 0.2% after being unchanged in September.

SunEdison drops further

SunEdison’s various convertible bonds resumed their slide on Tuesday, gapping lower after a hiatus on Monday amid lower energy prices.

“All of them were lower with oil down,” a New York-based trader said.

“The bonds were offered this morning with trades going into bids that were 3 to 4 points down,” a trader said.

Lower oil prices were a weight on the name, the trader said.

The debt-strapped solar technology company has dropped precipitously since it reported its disappointing third-quarter loss on Nov. 10. This week, headlines of stock sales by hedge funds hurt sentiment.

Meanwhile, Vivint Solar, the company that SunEdison is acquiring for $2.2 billion, reported on Monday third-quarter revenue that exceeded expectations but profit that missed estimates.

Meanwhile, Vivint reported only 61 megawatts of installations for the quarter and a 7% decrease in the amount of megawatts booked. Vivint shares fell 23% on Tuesday.

Deutsche Bank cut its price target on SunEdison to $16.00 from $28.00 per share, citing concerns about the acquisition of Vivint that is likely to require further debt financing, among other things.

In addition, disclosures about holdings in federal filings showed that Third Point exited its SunEdison shares and Greenlight Capital reduced its stake.

The SunEdison 2% convertibles due 2018, or the A tranche, fell to 47 from about 66 last Tuesday and 77 last Monday.

Shares fell below $5.00 per share in the middle of last week and now they are near $3.00 per share, compared to their 52-week high of $33.45.

The whole complex of SunEdison convertibles fell 3 points on swap across the board last Tuesday. It wasn’t known how the bonds performed against shares so far this week.

Black Hills looks cheap

The Black Hills mandatory deal values at about 102 at the midpoint of talk, using a credit spread of 250 basis points over Libor and a 3 vol. skew, a Connecticut-based trader said.

The $50 units were talked to yield 7.25% to 7.75% with an initial conversion premium of 17.5% to 22.5%.

Proceeds from both offerings will be used for partial funding of the previously announced acquisition of SourceGas Holdings LLC, which is expected to close in the first half of 2016.

Mentioned in this article:

Black Hills Corp. NYSE: BKH

Clovis Oncology Inc. Nasdaq: CLVS

SunEdison Inc. Nasdaq: SUNE

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