SunPower gets lukewarm reception on debut; Cemex steady; GLG jumps; Ciena, UAL in trade

By Rebecca Melvin

New York, March 26 - SunPower Corp.'s newly priced 4.5% five-year convertibles were seen in trade Friday at about par during the session. But there wasn't much activity in the new deal, which was placed almost entirely with outright investors.

Little available stock to borrow was blamed for the issue not attracting hedged interest.

"Bad enough borrow can wipe out the entire premium on an issue," a New York-based sellside trader said.

SunPower's older convertibles were little changed Friday, compared to Thursday when SunPower's shorter-dated convertibles moved up a bit but the longer-dated 4.75% convertibles contracted.

Elsewhere, trading was thin, although at least one sellsider reported trading of a lot of sundry issues.

Cemex SAB de CV was steady, trading at 102.25 versus a share price of $10.05. But the issue was not terribly active a day after the Mexican cement company's $650 million of convertibles based on their American Depositary Receipts was released for secondary dealings.

Ciena Corp. was a name in trade again. The Linthicum, Md.-based communications networking company saw its newest 4% notes little changed from Thursday but notably stronger for the week.

GLG Partners Inc. convertibles jumped into trade as their underlying shares surged 15%. The U.S.-listed alternative asset manager was named in reports as having had talks with the U.K.-based hedge fund Man Group, which is in considering acquisitions or investments.

The GLG 5% notes due 2014 jumped to 103 versus a share price of $3.10, according to a New York-based sellside desk analyst.

UAL Corp. was much stronger as investors eye the possibility that its underlying shares, which are close to its 52-week high, could move higher. The UAL 6% convertibles due 2029 were reported trading as high as 251 versus a share price of $20.40. Although Trace data showed the paper at 245, which was up 6 points.

Omnicom Group Inc. was also seen in trade, although there were no clear cut reasons behind the activity in that typically quiet name.

Quiet week overall

Traders said that the week overall was generally quiet with better activity and performance from investment-grade names.

"Outside of the new issues, it was a pretty slow week with volume dominated by investment-grade names," a Connecticut-based sellside trader said.

Another Connecticut-based bond trader, focused on high-yield convertible names, said it was the "quietest week in years for us."

What would have caused a dichotomy between high-yield and investment-grade paper wasn't clear, according to market sources.

Looking ahead, traders saw diminished activity due to the Passover holiday and Good Friday.

A positive for the past week was a continuance of new issuance. In addition to SunPower and Cemex, Kaiser Aluminum Corp.'s upsized $150 million of 4.5% convertibles debuted Wednesday in the secondary market.

Secondary market activity in Kaiser wasn't as pronounced as Cemex, but the Kaiser paper closed up at 103.5 versus a stock price of $38.10 on its debut.

SunPower prices at the mids, trades at par

SunPower's newly priced 4.5% five-year convertibles traded around par, with a market at par to 101 at late morning, according to one sellsider.

Earlier in the morning, the new paper was 100.5 bid.

Shares of the San Jose, Calif.-based solar company settled Friday higher by 20 cents, or 1.1%, to $18.22.

The newly priced deal was upsized to $220 million from $200 million after the close of markets Thursday.

The paper had a call spread, including both an embedded call and option at upper strike that can be settled in cash.

Notable in the dealings around this paper was that market players bought up common shares for the new deal and impaired the pricing of the older issue.

"If you owned the other ones, and they came in 3 points, why would you want the new one," a New York-based sellsider said.

The SunPower 0.75% convertibles were 99 bid at 10 a.m. ET.

The existing issues including the 0.75% notes, the 1.25% convertibles and the 4.75% convertibles all traded outright amid not too much volume.

"That's going to happen, they get cheaper due to borrow issues firmly into the outright guys. If you play something with a real borrow issue, you're going to do great, because people will want to buy it, and they spread out," the sellsider said. Meanwhile the premium goes away, he added.

SunPower draws outright buyers

Contrary to expectations, bookrunner Deutsche Bank didn't provide any borrow facility for the issue, and the paper was placed predominantly with outright investors, a syndicate source told Prospect News.

The syndicate source declined to specify what portion of the deal when to outrights, but it was much higher than the currently typical profile of 60% outright investors and 40% hedged investors.

The cost of the borrow goes into valuations of the paper as well. If there was a 1% borrow cost, then valuations would have a credit spread of about 1,500 basis points over Treasuries. "Forty-five vol. backs into that," a sellsider said.

If the paper had a normal borrow, the paper was expected to be very cheap, probably about 4% cheap, according to one analyst. With bad borrow he assumed 2.4% cheap.

Even without the borrow, the deal would be appealing to hedge players who think the stock is going up, the analyst said.

"On a hedge, it's not going to come cheap, but it sets up nicely to capture the gamma," the analyst said.

Contrary to typical practice, several analysts were basing the valuation of SunPower on U.S. Treasury rates and not on the Libor.

Interestingly Libor and the Treasury rates have come very close together in the last week instead of about 50 bps apart as they had been.

Ciena moves up on week

Ciena's 4% convertibles due 2015 traded at 104 versus a share price of $15.15 on Friday, down from 105.25 versus a share price of $15.50 on Thursday, but up from 102.5 versus a share price of $14.65 on Monday, according to a New York based sellsider.

The underlying shares of Ciena gained 29 cents, or 1.9%, to $15.44 on Friday. For the week, the Ciena shares were up 6 cents.

"Ciena, that's a good one. The low dollar stock price stuff usually trades pretty good," a New York-based sellsider said.

The Ciena convertibles, which came to market earlier this month, were repriced for a coupon of 4% and an initial conversion premium of 35%. That compared to original talk of 4.25% to 4.75% with a 25% to 30% premium.

Mentioned in this article:

Cemex SAB de CV NYSE: ADRs: CX

Ciena Corp. Nasdaq: CIEN

GLG Partners Inc. NYSE: GLG

Omnicom Group Inc. NYSE: OMC

UAL Corp. Nasdaq: UAUA

SunPower Corp. Nasdaq: SPWRA

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