New Ciena gains on debut; Intel up after earnings; Western Refining expands on upgrade

By Rebecca Melvin

New York, Oct. 13 - Ciena Corp.'s newly priced 3.75% convertibles were bid up early to as high as 104 on their debut in the secondary market Wednesday; but they settled lower at about 102 bid to 102.5 or 102.75 offered as the underlying stock came off its high level.

The Ciena deal was significantly upsized to $320 million in size, compared to an initially talked $175 million deal base.

Intel Corp. was another market focus in Wednesday's convertibles session, with the two Intel bonds higher after the Santa Clara, Calif.-based chipmaker reported third-quarter earnings that were largely in line with a recently lowered guidance.

Meanwhile, Western Refining Inc. saw its convertibles expand as much as 2 points after an upgrade by Morgan Stanley, a New York-based sellside trader said.

That upgrade sent the underlying shares of Western Refining up nearly 15%. But it was more than the stock move at work, the trader said. "There is a generally positive outlook on refiners right now."

Pittsburgh-based Wesco International Inc. was also in trade on Wednesday, as was EMC Corp. and VeriSign Inc., according to a New York-based sellside analyst.

Evergreen Solar Inc.'s convertibles also traded, moving up with a 19% stock move, and leaving those bonds at 47ish, up from a previous level in the low 40s.

Equities finished higher for a fourth straight session, although off their session highs. Investors have turned more bullish on expectations that stocks will rise with further quantitative easing and because earnings so far have come in generally better than expected.

The Dow Jones Industrial Average gained 75.68, or 0.7%, to 11,096.08, after earlier having sported a three-digit gain. The S&P 500 index added 8.33 points, or 0.7%, to 1,178.10; and the Nasdaq Stock Market gained 23.31, or nearly 1%, to 2.441.23.

Ciena gains on debut

Ciena's newly priced 3.75% convertibles were marked at about 102 bid, 102.5 offered at the close, according to one sellsider. A second sellsider said the new convertibles were slightly higher than that. The paper had jumped early to a high mark of 104, which was much better than the gray market bid of 100.5 on Tuesday.

Shares of the company ended down 8 cents, or 0.5%, at $15.14 on Wednesday.

The new bonds "were very active this morning," a sellsider said.

The Linthicum, Md.-based communications networking equipment and software company priced an upsized $320 million of the notes Tuesday evening. There is a $30 million greenshoe.

The Ciena deal was originally talked at $175 million in size with a $35 million greenshoe.

The Rule 144A deal came at the midpoint of talk, which was for a yield of 3.5% to 4% and a 30% to 35% initial conversion premium.

Deutsche Bank Securities Inc. and Morgan Stanley & Co. Inc. were the bookrunners.

The eight-year notes will be non-callable for life.

The only complaints heard among traders were that the new bond's term is too long and that there is a lot of other debt, including three other convertible issues.

There wasn't much activity Wednesday in the existing Ciena convertibles, contrary to Tuesday when they were mixed in trade after the new deal was launched.

Ciena is going to buy back its 0.25% convertibles due 2013 with proceeds from the new convertible.

On the new bond, a trader said: "They didn't look bad given the rate and premium combination. The problem is it's eight-year paper, and it's not that big of a company with a lot of other converts. Somewhere along the line it's going to get into trouble."

Intel higher after earnings

Intel's newer 3.25% convertibles traded at 119.25 versus a share price of $20.00 early Wednesday, which was when the underlying shares opened higher. Subsequently the shares came off.

At the end of the session, a sellsider had the Intel 3.25% convertibles marked at 118, and that compared to a 117.75 bid versus a share price of $19.56 on Tuesday.

Intel's 2.95% convertibles due 2035 traded at 99.637, which was up 1.6 points outright on the day.

Shares of the company were heavy most of the session after opening up, and then the shares sold off into the market close, leaving the stock down 53 cents, or 2.7%, at $19.24.

"There seems to never be any rhyme or reason with that stock," a Connecticut-based sellside trader said regarding the stock move.

Investors' initial reaction to the chip maker's earnings news was positive, and shares rose in after-hours trading Tuesday, when the earnings were released post close.

Intel reported a jump in third-quarter income due to solid demand from Intel's business customers.

Net income totaled $2.96 billion, or 52 cents a share, compared to $1.86 billion, or 33 cents per share, in the same quarter last year. That was 2 cents better than consensus.

Revenue rose 18% to $11.1 billion, which was 1% higher than the firm's recently lowered revenue guidance midpoint as strength in enterprise and emerging markets continued, said FBR Capital's Craig Berger in a note.

Berger also noted that the company reported "reasonably robust third-quarter results and guided fourth-quarter results better than feared, setting the stage for a possible continuation of the tech rally on Intel's solid outlook."

Western Refining expands

Western Refining's 5.75% convertibles due 2014 traded up to the mid-90s on Wednesday, compared to a previous level in the mid-80s, a New York-based sellside trader said.

Shares of the El Paso, Texas-based independent oil refiner and marketer surged 84 cents, or nearly 15%, to $6.51 in heavier-than-average volume on Wednesday.

"WNR got a lot better today. It definitely expanded a few points," the sellsider said.

Morgan Stanley upgraded shares of the company to "overweight" with a $9.00 price target since the company is implementing a restructuring initiative that involves heavy deleveraging and a refocus of its portfolio on higher-return markets. The company is aiming to reduce its debt by more than half in 2011.

"There's a lot of positive opinion for refiners right now, and Morgan Stanley upgraded the stock. This had been an overlooked name, and now there's a level of enthusiasm," the sellsider said.

The Western Refining convertibles have a decent premium compared to its yield, which is pretty healthy.

"It's not a gigantic premium compared to yield, but it's pretty interesting in a market that's pretty picked over," the sellsider said.

The 5.75% bond's premium is 60% and its yield is around 7%, the sellsider said, adding that most convertibles with a 60% premium have a 3% to 4% yield or less.

Still, Western Refining has considerable debt and investors are "definitely taking a risk" being involved in the name, the sellsider said.

Mentioned in this article:

Ciena Corp. Nasdaq: CIEN

EMC Corp. NYSE: EMC

Evergreen Solar Inc. Nasdaq: ESLR

Intel Corp. Nasdaq: INTC

VeriSign Inc. Nasdaq: VSRN

Wesco International Inc. NYSE: WCC

Western Refining Inc. NYSE: WNR

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