EMC holds gains; Western Refining extends gains; EnerSys up; new Alon issue doesn't price

By Rebecca Melvin

New York, Oct. 15 - The convertible bond market ended the week Friday like it started out: quiet.

EMC Corp. held gains early Friday that were notched Thursday, when the storage-equipment maker dominated trading action amid rumors that it could be acquired by Oracle Corp. The two EMC sister convertible issues weakened a touch late in the session with lower shares.

Western Refining Inc. also had a good week, moving up to trade at 99.25 on Friday after having expanded as much as 2 points on a Morgan Stanley upgrade Wednesday. The Western Refining convertibles were in the mid-80s a week earlier.

But NII Holdings Inc.'s convertibles didn't fare so well during the week, moving down Thursday on a report that Grupo Televisa, a Mexican media company, may end an agreement with NII Holdings' Mexican wireless arm, Nextel.

There were names that changed hands on Friday that have not been heard of late, including industrial battery maker EnerSys, which traded up a point to 103 versus a share price of $26.25, which was in line with shares; and biopharmaceutical company Theravance Inc., which traded flat compared to Thursday, at 109 versus a share price of $22.90.

Dallas-based petroleum products marketer Alon USA Energy Inc. didn't price as planned Thursday a $60 million offering of perpetual convertible preferred stock that launched Tuesday.

A syndicate source said Friday that the company was weighing its options and that the deal would possibly price Monday.

Alon Israel Oil Co. Ltd., the company's majority shareholder, had indicated its desire to purchase about $30 million of the $60 million of preferred stock being offered.

Also pricing Friday was an overseas deal by Germany's Q-Cells SE, which priced €128.7 million of five-year convertible bonds to yield 6.75% with an initial conversion premium of 27.5%, according to a news release.

Stocks provide lift

Overall, midweek action was positive for convertibles, with stocks, which were up most of the week, a contributing factor, a New York-based sellsider trader said.

"There are times that it's not helpful; but right now it is," he said of stocks. "The market is credit based, and stocks are being treated positively by converts."

He said the trends in trading right now are credit based and not volatility based.

"Credit names are in focus; that's where people are making the most money. There are more inflows into the asset class. And as always, the asset allocators get it exactly wrong and come in too late - when it's fully valued. Then when it's oversold, they bail out, when they should come in," the trader said.

He said the strategy should be "to find the trades you like best and add to them - or you can choose to be in cash...."

EMC mostly holds gains

The EMC 1.75% convertibles due 2011 traded at 136.75 versus a share price of $21.20 early Friday, according to a New York-based sellside trader. At the close, the EMC A convertibles were seen at 135.64 versus a closing share price of $21.09, compared to trades at 136.375 and later 136 on Thursday, which was up better than 5 points outright.

EMC's 1.75% convertibles due 2013 traded late at 143.125, which was down just 0.125 point on the day, after jumping 7 points outright on Thursday.

Shares of the Hopkinton, Mass.-based data storage company slipped 12 cents, or 0.6%, to $21.09 on Friday.

"EMC had a good week," a New York-based trader said.

Both issues trade on hedge.

Rumors that EMC is a potential target for Oracle were bandied about. One sellsider said his firm's equity analyst thinks EMC does makes sense for Oracle but that the takeover game "is all a crap shoot. Nobody really knows."

Western Refining extends gains

Western Refining's 5.75% convertibles due 2014 traded up to 99.25 versus a share price of $6.90 Friday, which was up from 93.75 versus a share price of $6.10 on Wednesday afternoon, a New York-based sellside analyst said.

That mid-90s pricing was up from the mid-80s earlier in the week and the previous week.

Shares of the El Paso, Texas-based independent oil refiner and marketer slipped 13 cents, or 1.9%, from $6.65 on Friday.

Morgan Stanley upgraded shares of the company to "overweight" with a $9.00 price target on Wednesday.

The Western Refining convertibles have a large premium compared to its about 7% yield.

Alon may price Monday

Alon's perpetual preferred stock offering, which didn't price Thursday as planned, was seen possibly pricing Friday or Monday, a syndicate source said. The source declined to provide further information.

Another source said that the deal, which was being marketed by Deutsche Bank, was being talked at a dividend of 8% with an initial conversion premium of 10%. That pricing was richer on the dividend compared to initial talk of 8.25% to 8.75%, and cheaper compared to initial premium talk of 15% to 20%.

Half of the deal was sold to one or two investors, and the other half was looking to be placed Friday or Monday, the source said.

Q-Cells prices €128.7 million

Q-Cells' €128.7 million of five-year convertible bonds priced at the rich end of coupon talk, which was 6.75% to 7.75%, and beyond the rich end of the 20% to 25% talked premium, for a 6.75% convertible with a 27.5% initial conversion premium.

Joint bookrunners Citigroup, Goldman Sachs and UniCredit Bank AG completed the institutional placement of the bonds, which is subject to shareholders' subscription rights.

The registered bonds can be converted into 29.4 million shares, and shareholders have preferential subscription rights until Oct. 18, which if exercised in full would represent a maximum clawback of 57.4%.

Proceeds will be used to repurchase the company's existing 2007/2012 convertible bond. Any remaining proceeds will be used to strengthen the company's financial position and implement strategic repositioning.

Thalheim, Germany-based Q-Cells is a maker of high-performance solar cells.

Mentioned in this article:

Alon USA Energy Inc. NYSE: ALJ

EMC Corp. NYSE: EMC

EnerSys NYSE: ENS

NII Holdings Inc. Nasdaq: NIHD

Q-Cells SE Frankfurt: QCE

Theravance Inc. Nasdaq: THRX

Western Refining Inc. NYSE: WNR

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