Convertibles flat to higher amid earnings; primary market mute; SunEdison files Chapter 11

By Rebecca Melvin

New York, April 21 – Earnings reports spurred trading action on Thursday in U.S. convertibles, which remained firm to better amid strong bidders. But the primary market was quiet, which has put a damper on market dynamics for the time being, market players said.

“The general theme is more of the same,” a New York-based trader said. “Everything continues to improve valuation wise, though secondary flows remain skewed toward the larger issues.”

That trader estimated that the market overall was up by 0.215 point to 0.25 point on a swap basis on Thursday.

A second trader said that the market felt fairly active, with a decent bid, but that the market was somewhat mixed.

Lam Research Corp. was active with both the 0.5% convertibles due next month and the 1.25% convertibles due 2018 edging down on an outright basis but in line to slightly better on a swap basis as the common shares of the Fremont, Calif.-based semiconductor-equipment maker traded off.

Tesla Motors Inc.’s A and B convertibles were also a little better on swap, as were Anthem Inc. and Cemex SAB de CV’s 3.75% convertibles, which were all slightly better by about 0.125 point to 0.25 point, a trader said.

SL Green Realty Inc. was flat on swap with the underlying shares of the New York-based real estate investment trust up on the back of positive earnings.

“Things were slightly better to buy today, but for the most part it was trendless with no major theme,” the trader said of the day’s session.

There was trading in four of the eight convertible bond issues of SunEdison Inc. after the renewable power company said that it has filed for restructuring under Chapter 11 in the U.S. Bankruptcy Court for the Southern District of New York.

The filing has been widely anticipated, and only more so after SunEdison confirmed last week that it had entered into confidentiality agreements with certain lenders regarding debtor-in-possession financing. A DIP facility for $300 million was arranged.

Looking ahead to Friday’s action, one trader said that the day’s crop of earnings could likely spark trading in Crown Castle International Corp.’s 4.5% convertible preferred stock due Nov. 1, 2016, as well as Proofpoint Inc., Unisys Corp. and Trinity Industries Inc.

Lam in line to higher on swap

Lam Research’s 1.25% convertibles due 2018 were seen last at 145.50, which was down from about 146.5 previously.

The Lam Research 0.5% convertibles that mature next month traded at 131.625, which was down from about 133.

But these issues were seen slightly stronger as Lam Research common shares traded down $1.85, or 2.2%, to $80.82.

Lam reported fiscal third-quarter earnings that beat estimates but revenue that was mediocre.

Net income was $143.5 million, or 82 cents per share. On an adjusted basis, earnings came to $1.18 per share. Analysts had been expecting earnings of $1.10 per share. The designer and maker of semiconductors for integrated circuits posted revenue of $1.31 billion in the period, which met expectations.

For the current quarter ending in June, Lam Research expects its earnings to range from $1.53 to $1.73 per share. Analysts had expected adjusted earnings of $1.47 per share.

The company said it expects revenue in the range of $1.45 billion to $1.60 billion, which compares to analysts’ expectations for $1.47 billion of revenue.

SL Green unchanged on swap

The SL Green 3% convertibles due 2017 trade only on swap. “The stock ripped, but the convertibles were unchanged. That shows you what kind of a market we are in,” a New York-based trader said.

SL Green shares closed up $3.06, or 3%, at $105.18.

SL Green reported funds from operations of $193 million, or $1.85 per share, for its first quarter, compared to $155.5 million, or $1.51 per share, for the same period last year. Analyst expected earnings of $1.65 per share.

The company had net income of $23.2 million, or 23 cents per share.

The New York-based commercial REIT posted revenue of $345.6 million in the period, also exceeding estimates for $327.4 million. SL Green expects full-year funds from operations to be $8.17 to $8.25 per share.

Based on the accelerated sale of 388-390 Greenwich Street to Citi, and the early termination of Citi’s lease of that property, SL Green’s performance for the first three months and its outlook for the rest of the year is higher, at $8.17 to $8.25 from the previous FFO guidance range of $6.90 to $7.00 per share. On a comparable basis, after giving consideration to items that would not otherwise be attributable to 2016, the company’s 2016 normalized FFO per share guidance range would increase to $6.96 to $7.04 per share.

SunEdison little changed

SunEdison, the Maryland Heights, Mo., operator of renewable power plants, said it made the bankruptcy filing in order to address its “immediate liquidity issues.” It listed assets of $20.7 billion and liabilities of $16.1 billion in its filing.

The convertibles were little changed.

“They weren’t that active. A lot of guys are waiting to see what happens,” a New York-based trader said, calling the market on all the convertibles at 3 bid, 5 offered, except for the newest 5% convertible senior secured notes due 2018, which priced early this year, and were called 19.5 bid, 22.5 offered, with trades at 20.5.

The 2.75% convertible senior notes due 2021 traded up at 4.875 and 5.6 in the early going, from 4.50 and 4.75 on Wednesday, but were back in the 3 bid, 5 offered range at the end of the session.

The other bonds that were said to have traded were the 0.25% convertible senior notes due 2020 and 2% convertible senior notes due 2018.

SunEdison’s 2.375% convertibles due 2022 had not traded on Thursday and were last at 4.125.

Shares were up a bit at 34 cents each.

SunEdison’s other convertible issues include: the 6.75% perpetual convertible preferreds, 2.625% convertible senior notes due 2023, and 3.375% convertible senior notes due 2025.

“So it was the As, Bs, and Cs and the newest,” a trader said of the issues that traded.

As for whether there will be more bankruptcy filings in the near future given volatility in the energy sector, a trader said that it looked like things were stable for how.

“Everything is priced in; everybody has been preparing. There is probably more to come, but it seems the companies are doing whatever they can to stay afloat,” the trader said.

Mentioned in this article:

Cemex de SAB NYSE: CX

Crown Castle International Corp. NYSE: CCI

Lam Research Corp. Nasdaq: LRCX

Proofpoint Inc. Nasdaq: PFPT

SL Green Realty Corp. NYSE: SLG

SunEdison Inc. Nasdaq: SUNE

Tesla Motors Inc. Nasdaq: TSLA

Trinity Industries Inc. NYSE: TRN

Unisys Corp. NYSE: UIS

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