Harmonic trades flat after pricing wide; planned SunPower looks cheap: SunEdison unchanged

By Rebecca Melvin

New York, Dec. 9 – Harmonic Inc.’s newly priced 4% convertibles traded around 100 to 100.5 on Wednesday, which was about flat on swap, after the San Jose, Calif.-based video infrastructure company priced $125 million of the five-year senior notes beyond the cheap end of initial talk for a 2.75% to 3.25% coupon and 37.5% to 42.5% premium.

Traders were surprised that the new Harmonic notes, which have an initial conversion premium of 28%, would have trouble managing to stay above par after pricing that was modified significantly.

“That’s a huge repricing and shows what is going on in the market,” a New York-based trader said.

In contrast to the weaker U.S. convertible primary space, there seemed to be resilience in the European primary market.

Switzerland’s Basilea Pharmaceutica Ltd. priced CHF 200 million of 2022 convertible senior bonds – which was the high end of the deal size – at the tight end of talked terms for a 2.75% coupon and 30% initial conversion premium.

“This was a biotech that got priced at the rich end,” the trader said.

The Regulation S deal had been talked at CHF 175 million to CHF 200 million in size.

Also in the primary space, SunPower Corp. was expected to price $350 million of seven-year convertible senior debentures after the market close. That deal were seen to be worth about 102.5 at the midpoint of price talk, using a credit spread of 600 basis points over Libor and 35% vol., according to a Connecticut-based trader.

The deal was also valued with a borrow cost of minus 1.5%.

The SunPower convertibles were talked to yield 3.5% to 4% with an initial conversion premium of 32.5% to 37.5%.

SunPower’s existing convertibles were not heard in trade. Neither SunPower’s $400 million of 0.875% convertibles due 2021, which priced in June 2014, nor its $300 million of 0.75% convertibles due 2018, which priced in May 2013, were trading, a market source said.

Back in established issues, SunEdison Inc. announced a restructured agreement to acquire Vivint Solar Inc., which initially sent the SunEdison convertibles about a point or two higher, but then they pulled back to about the unchanged mark, a New York-based trader said.

New Harmonic trades flat

Harmonic’s new 4% convertibles were seen in trade at 100 to 100.5.

Harmonic shares closed down another 15 cents, or 3.3%, to $4.34 on Wednesday, after dropping sharply on Tuesday.

The deal was significantly repriced and raised eyebrows that it still didn’t have much punch in first-day dealings.

The company priced $125 million of five-year convertible senior notes at par to yield 4% with an initial conversion premium of 28%. That was through the cheap end of talk for a 2.75% to 3.25% coupon and 37.5% to 42.5% premium.

BofA Merrill Lynch was the bookrunner of the deal, which has an $18.75 million greenshoe.

The notes are non-callable and will be convertible into cash, shares or a combination at Harmonic’s election.

About $70 million of the proceeds will be used to pay a portion of the costs associated with its previously announced acquisition of Thomson Video Networks SAS.

Harmonic is also using $50 million of the proceeds to repurchase shares from purchasers of the notes in privately negotiated transactions effected through the initial purchaser or its affiliate concurrently with the offering. That amount was up from $25 million of share repurchases that were initially expected.

Harmonic may use a portion of the proceeds from the greenshoe to repurchase additional shares of its common stock under its existing share repurchase program. Any remaining proceeds will be used for working capital and general corporate purposes.

Harmonic is a San Jose, Calif.-based is video infrastructure products maker.

Basilea prices at rich end

Basilea priced CHF 200 million of convertible senior bonds due 2022 to yield 2.75% with an initial conversion premium of 30%; that was the tight, or rich, end of talk for a 2.75% to 3.5% coupon and 25% to 30% initial conversion premium.

The Regulation S deal also came at the high end of deal size, which was talked at CHF 175 million to CHF 200 million. Joint bookrunners of the deal were JPMorgan and UBS.

The bonds will be provisionally allocated to investors participating in the Wednesday book, but subject to a clawback, or pro-rata reduction, based on subscription rights exercised by existing shareholders.

Proceeds will be used to participate in a U.S. phase 3 development program for ceftobiprole, to support and expand commercialization of Cresemba and Zeviera, to support post-approval pediatric studies approved by the European Medicines Agency for isavuconazole and ceftobrprole in Europe, to advance its oncology product candidates, and for working capital and other general corporate purposes.

Basilea plans to apply to list the bonds for trading on the SIX Swiss Exchange. The deal is expected to settle on Dec. 23.

The company also intends to withdraw its previously announced F-1 public offering of common shares in the United States in the form of American Depository Shares.

Basilea is a Basel, Switzerland based biopharmaceutical company focused on bacterial and fungal infections and cancers that are resistant to current treatment options.

SunPower looks cheap

SunPower’s proposed $350 million of seven-year convertible senior debentures looked to be more than 2% cheap using a credit spread of 600 bps over Libor and 35% vol. The deal was talked to yield 3.5% to 4% with an initial conversion premium of 32.5% to 37.5%, according to market sources.

The Rule 144A deal, which was launched after the market close on Tuesday, was expected to price after the market close on Wednesday via joint bookrunners Goldman Sachs & Co., Credit Agricole Securities (USA) Inc., Deutsche Bank Securities Inc. and Mizuho Securities USA Inc.

SunPower shares fell $2.06, or 8%, to $23.04 on the heels of the deal launch.

The new convertibles are non-callable for life with no puts and will be stock settled only. There is cash takeover protection via a conversion rate ratchet formula and dividend protection via a conversion rate adjustment.

Total Energies Nouvelles Activites USA has agreed to purchase $100 million of the deal conditioned on SunPower issuing at least $300 million of debentures total. If the underwriters exercise the greenshoe, Total’s commitment will not change.

The company intends to use proceeds for general corporate purposes.

SunPower is a San Jose, Calif.-based provider of high-efficiency solar cells, solar panels and solar systems.

SunEdisons end unchanged

SunEdison’s 2.375% convertibles traded up a point or two initially after news that the company has amended its proposed acquisition agreement with Vivint, but later they slipped back to about the unchanged mark, a trader said.

The SunEdison 2% convertibles traded up to 51.75 from 44.75 but were later seen crossing Trace at 49.5.

All of the SunEdison convertibles were in trade, including the SunEdison 3.375% convertibles, the SunEdison 2.75% convertibles and the SunEdison 6.75% convertible preferreds.

“SunEdison is restructuring, so the bonds rallied a point or two. But now they are back to unchanged, after all is said and done,” a trader said.

The bonds were relatively active, but the stock “is more liquid than anything,” the trader said.

SunEdison shares surged 51 cents, or 15%, to $3.96.

SunEdison said its planned deal for Vivint Solar Inc. has been amended in that the agreement reduces the cash portion of the deal and Blackstone Group LP has agreed to provide a $250 million credit facility.

The company said that the agreement was modified because of recent market volatility. Shares rose as much as 19% in trade on Wednesday.

SunEdison agreed to buy Vivint in July for about $1.9 billion in cash, stock and notes. And including debt, the deal was valued at $2.2 billion.

The new deal is still subject to approval by Vivint shareholders, and will not be completed before Jan. 29. Previously the deal was expected to be completed in 2015.

Mentioned in this article:

Basilea Pharmaceutica Ltd. Swiss: BSLN

Harmonic Inc. Nasdaq: HLIT

SunEdison Inc. Nasdaq: SUNE

SunPower Inc. Nasdaq: SPWR

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