Suntech, Trina rise as solar stocks rally; A123 drops; AMR adds; Siemens deal on tap

By Rebecca Melvin

New York, Feb. 9 - Yield and distressed names were more of a focus Thursday in the convertible bond market than they have been in recent sessions.

Suntech Power Holdings Co. Ltd. traded up a couple of points to 75 amid a second straight day of strength in solar equities, which were up across the board by 10% to 20%, extending gains notched Wednesday.

In addition, the convertibles of Suntech, the world's largest solar-panel maker, and the convertibles of Trina Solar Ltd., the fifth-largest solar panel supplier, based in Changzhou, China, were also in trade at sharply higher levels.

The solar sector has been the subject of headlines forecasting shifting and possibly stronger demand. China, for example, is touted as a growing market for solar power panels. However, some market observers suggested that the outsized rally in solar equities, a heavily short-covered sector, might have had to do with short covering.

Elsewhere, A123 Systems Inc.'s convertibles were pulled below 50 by bad news on funding for its largest customer and a share downgrade for the Waltham, Mass.-based rechargeable battery maker.

Also in the distressed arena, AMR Corp. was creeping up on decent activity Thursday, with the AMR 4.25% convertibles having traded up 0.5 point to 31.5.

Textron Inc., a deep in-the-money name that has been improving of late on a dollar-neutral, or hedged, basis, was higher again on Thursday after Fitch Ratings upgraded shares of the industrial company involved in defense, aircraft and automobiles.

There were no new issues in the U.S. convertibles primary market, but Siemens AG launched a U.S. dollar-denominated offering of $3 billion of bonds with warrants, a convertible-like structure, that was being sold to institutional investors outside of the United States in the region covering Europe, the Middle East and Africa.

The outsized deal of investment-grade paper was being greeted eagerly by investors that have been starved for new issuance in that region.

Meanwhile, U.S. stocks continued to edge higher, with the Dow Jones industrial average adding another 6.5 points, and standing now at 12,890.46.

Solar names shine

Suntech Power's 3% convertibles due 2013 traded at 74 during the session and ended the day at 75, market sources said. That was up about 2 points on the day.

Suntech shares ended the day sharply higher, or up 33 cents, or 8.6%, at $4.18 in heavy volume.

Trina Solar's 4% convertibles due 2013 traded up above par from a previous price level in the mid 80s, a Connecticut-based trader said.

Trina shares surged $1.67, or 18%, to $10.90 in ultra-heavy volume, and the gain was on top of a run up on Wednesday.

The moves in the solar convertibles universe weren't as dramatic as the moves in the underlying shares, a New York-based analyst said.

The news out "is nothing crazy," he said.

On Thursday, Deutsche Bank research analyst Vishal Shah published a note that said there are "preliminary signs of a pick-up in demand." He said panel makers in China, Taiwan and Korea are seeing increased bookings momentum, and downstream companies in Europe are also seeing rising orders.

In addition, positive outcomes were anticipated from trade policy meetings involving U.S. vice president Joe Biden and his counterpart in China regarding China subsidies and tariffs, the analyst said.

Nevertheless, he didn't think these factors justified the size of the rally in solar shares.

"There might be some short covering going on in the stocks. For them all to be up 10, 15, 20% doesn't seem to be justified given the news out," the analyst said.

"There's no justification for the move other than that it's a heavily short-covered sector, and those rallies can be really impressive," he said.

A123 sinks 3.5 points

A123 System's 3.75% convertibles due 2016 traded down about 3.5 points to 49 during the session and were called "in the high 40s" at the market close.

Shares of the electric car battery maker fell 59 cents, or 24%, to $1.88 in very heavy volume.

Wunderlich Securities analyst Theodore O'Neill downgraded the shares to sell and wrote in a research note that the government funding required by A123's largest customer Fisker Automotive Inc. may not ever be restored due to the current politically charged environment in Washington, D.C.

Fisker said Feb. 6 that it fired 26 employees and stopped work at a factory to make plug-in electric cars after the U.S. Energy Department blocked access to a federal loan.

Textron rising

Textron's 4.5% convertibles of 2013 were seen at 110.25 outright versus an underlying share price of $27.10 during the session, according to a market source. Shares of the Providence, R.I.-based company slipped 8 cents to $26.99.

The deep in-the-money convertible trades on a high delta that follows stock moves closely.

"It's a multi-industry company that is going to be sensitive to macro data out," a New York-based analyst said. "Just the general tone in the market is going to give that a boost."

Fitch upgraded Textron Thursday to BBB-, saying the outlook is stable. Textron operates in the aircraft, defense, automobile, industrial, and finance businesses.

Siemens to price $3 billion

The $3 billion bonds with warrants that a Siemens unit was expected to price late Thursday was being enthusiastically watched after being launched early in the day.

The company is pricing two equal tranches of $1.5 billion each with maturities of 5.5 years and 7.5 years.

The shorter-dated paper was talked at a coupon of 0.55% to 1.05%, and the longer-dated paper was talked at a coupon of 1.15% to 1.65%. Both have initial conversion premiums of 37.5% to 42.5%.

There was no increase option for the offering, according to a syndicate source.

The Regulation S bonds were being sold via bookrunners Barclays Capital, Deutsche Bank AG, JPMorgan and Credit Suisse.

Settlement was set for Feb. 16.

After issuance, the warrants can be detached from the bonds

The Munich-based conglomerate said proceeds would be used for general corporate purposes and to support financial flexibility.

Mentioned in this article:

AMR Corp. Pink Sheets: AAMRQ

A123 Systems Inc. Nasdaq: AONE

Suntech Power Holdings Co. Ltd. NYSE: STP

Textron Inc. NYSE: TXT

Siemens AG Frankfurt: SIE

Trina Solar Ltd. NYSE: TSL

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