New Spansion slips outright on debut; B2Gold 'still up there'; market weighs Fed minutes

By Rebecca Melvin

New York, Aug. 21 - Spansion Inc.'s newly priced 2% convertibles due 2020 traded down on their debut in the secondary market on Wednesday along with underlying shares of the Sunnyvale, Calif.-based semiconductor device company after the upsized $125 million of the seven-year exchangeables priced at the midpoint of talk.

The new Spansion convertible was quoted at 98.5 bid, 99 offered versus an underlying share price of $10.31 at midafternoon, according to a syndicate source. But that level was higher on a dollar-neutral, or hedged, basis by about 0.5 point, he said, assuming a 75% delta.

There was both outright and hedged participation in the Spansion market action, a New York-based syndicate source said.

B2Gold Corp.'s 3.25% convertible, which debuted in the convertibles market on Tuesday, was "still up there," a syndicate source said. The price was off a point or two, but shares were down by a greater amount. Shares ended down 5%, dropping into the close with the broader markets following release of minutes from the Federal Reserve's last policy setting meeting.

Trading volume of B2Gold was significantly reduced from Tuesday, the syndicate source said.

Overall, the day was quiet, with many market players waiting for the release of the Fed minutes at 2 p.m. ET.

The minutes showed that there was generally a lack of consensus among Fed officials at the meeting held July 30-31, but not enough pull to adjust previous targets or guidance. The current expectation is for the Fed to begin to taper its bond-buying program later this year and with a wrap-up of the program in mid-2014.

After the minutes, U.S. Treasuries weakened, sending the yield on the benchmark 10-year Treasury up 4 basis points to 2.86% from 2.82% late Tuesday.

Many market watchers expect the Federal Reserve will begin to reduce its bond purchases at its Sept. 17-18 meeting, but some officials appeared slightly more pessimistic about the economic outlook than they had earlier in the year, when there was an expectation that growth would pick up in the second half of the year and strengthen more in 2014. Recent economic data was described as mixed by officials in the July minutes.

Market sources said that most of the convertible market's focus during the session was on the minutes and on interest rates, but players were also watching reports coming out of Syria that hundreds were killed in a possible chemical weapons attack. There is a humanitarian concern regarding the situations in Syria and Egypt, but it is not a market concern in the U.S., one trader said.

Spansion slips on debut

Spansion's newly priced 2% convertibles due 2020 were quoted down at 98.5 bid, 99 offered versus an underlying share price of $10.31 at midafternoon Wednesday. But that level represented an expansion of the bond on a dollar-neutral, or hedged, basis by about 0.5 point, a syndicate source said.

At the close, the new convertibles were quoted at 99.25 bid, 100 offered versus an underlying share price of $10.42, according to a second syndicate source.

The Spansion bonds had climbed out of the chute to 101 to 101.5 "for a while," the source said, but they traded primarily around par.

The low trade was 99, a third source said.

The deal - which was upsized to $150 million from $125 million - represents the latest in a string of new issues coming from tech companies. Last week, JDS Uniphase Corp. and Rambus Inc. priced deals and Web.com Group Inc. was a tech sector company that priced earlier in the month.

There was strong demand for allocations of the new deal, which was over-subscribed, a syndicate source said, adding that the greenshoe was upsized to $22.5 million from an originally talked $18.75 million of additional shares.

But the new Spansion paper was weighed down on an outright basis by lower shares, which fell by as much as 5% before regaining some ground at midday. Shares of the Sunnyvale, Calif.-based semiconductor device company ended down 30 cents, or 2.8%, at $10.37 in active trade.

Pricing of the Rule 144A deal came at the midpoint of talk, which was for a coupon of 1.75% to 2.25% and an initial conversion premium of 27.5% to 32.5%.

Joint bookrunners were Barclays, Citigroup Global Markets Inc., Morgan Stanley & Co. LLC, Wells Fargo Securities LLC and Jefferies & Co.

In connection with the deal, Spansion entered into capped call transactions with initial purchasers of the bonds or their affiliates. Those details were not made public, the syndicate source said.

Proceeds will be used to pay the cost of the capped call transactions, to repurchase $100 million principal amount of its outstanding 7.785% senior straight notes due 2017 and to fund capital expenditures, working capital and general corporate purposes, which may include repayment of other outstanding debt and to fund acquisitions or other strategic transactions.

Ahead of pricing, the Spansion deal was seen fair to rich, especially at the midpoint, which is where it priced.

Using a credit spread of 650 bps over Libor and a 40% vol., the deal modeled at 98.5 at the midpoint of talk, according to a West Coast-based trader.

New B2Gold holds up

B2Gold's 3.25% convertibles due 2018, which debuted Tuesday, were quoted at 101.5 bid, 102.5 offered versus an underlying share price of $2.86 at the close on Wednesday.

That level compared to 103 bid, 104 offered versus an underlying share price of $2.93 on Tuesday.

Shares of the Vancouver, B.C.-based gold producer ended down 14 cents, or 4.7%, at $2.84 in active trade. But even with the stock weakness, the bonds "stayed up there," a syndicate source said.

Trading action slowed considerably from Tuesday's volume though.

The new B2Gold convertible is seen trading on a 65% to 70% delta.

Joint bookrunners were J.P. Morgan Securities LLC and BMO Capital Markets Corp. Co-managers included TD Securities, GMP Securities, Canaccord and National Bank Financial.

B2Gold explores and develops mineral properties primarily in Colombia, Nicaragua, Uruguay and Namibia.

Mentioned in this article:

B2Gold Corp. NYSE: BTG

Spansion Inc. Nasdaq: CODE

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