SunEdison convertible bonds languish below 4; Tesla up on new sedan orders; Anacor gains

By Rebecca Melvin

New York, April 4 – U.S. convertibles started the week on a quiet note on Monday with traders mostly disregarding lower equities, which were off fractionally from Friday’s year-to-date high marks, and focusing instead on a handful of issues associated with company-specific news, market sources said.

SunEdison Inc.’s convertibles traded at their lowest-ever levels after the St. Peters, Mo.-based solar, or renewable energy, company missed a coupon payment on Friday and said that it is in talks to pursue Chapter 11 bankruptcy.

Several of the bonds in SunEdison’s multiple series of convertibles were trading actively, and the action was chalked up to “a combination of a lot of different things, including some holders cleaning up positions,” a New York-based trader said.

The bonds traded early in the session in the 2 to 2.5 range and lifted to 3 to 4 in afternoon trade. SunEdison shares careened down 51% to about 20 cents.

Elsewhere, the convertibles of Brocade Communications Systems Inc. moved down on an outright basis but were seen in line, or flat, on a dollar-neutral basis after the San Jose, Calif.-based networking company announced that it is acquiring networking storage company Ruckus Wireless.

Brocade’s convertibles traded down 2 or 3 points to 96 against shares that fell 13%.

Tesla Motors Inc.’s convertibles were in focus after the Palo Alto, Calif.-based electric car maker said initial orders for its new Model 3 electric sedan, slated to go into production next year, topped 253,000 in the first 36 hours after launch.

Tesla’s 1.25% convertibles due 2021 were seen ending the day at about 91, which was up from 88 on Friday and 86 on Thursday.

Tesla shares were up $9.40, or nearly 4%, to $246.99.

Anacor Pharmaceuticals Inc.’s 2% convertibles due 2023, which debuted in the convertibles market on Friday, were up more than 3 points to 108 in the early going. Shares pf the Palo Alto, Calif.-based biopharmaceutical company jumped more than $3.50, or 6%, to $60.70.

Anacor priced $250 million of the seven-year notes late Thursday.

There was a lot of volume of Lam Research Corp.’s 0.5% convertibles, which mature next month. Those bonds were trading up about 0.2 point to around 134.50. Shares were down 0.5% at $82.54.

In the broader markets, stocks were off fractionally following highs notched on Friday after the positive March U.S. jobs report and other positive economic data.

The S&P 500 stock index edged lower by 6.65 points, or 0.3%, to 2,066.13; the Dow Jones industrial average shed 55.75 points, or 0.3%, to 17,737.00 and the Nasdaq stock market ended down 22.75 points, or 0.5%, to 4,891.80.

SunEdison busy as filing eyed

SunEdison’s 0.25% convertibles due 2020 traded at 2 to 2.5 and later at 3 to 4, a New York-based trader said. The SunEdison 3.375% convertibles due 2025 and SunEdison 2.625% convertibles due November 2023 were at the same levels.

“There were holders “cleaning up positions,” the trader said, adding that distressed traders were also eyeing different aspects of a bankruptcy and how different lawsuits and other factors would affect value.

“It looks like they will definitely pursue the bankruptcy and people are figuring out what value is there,” he said.

SunEdison’s yieldco Terraform Global Inc. is suing SunEdison, claiming it misappropriated $231 million of Terraform’s cash in an effort to boost SunEdison’s liquidity position.

Staffing company Aerotek Inc. is also suing the company, claiming SunEdison owes it $1.02 million for providing contract employees on projects in California, Colorado and other locations.

Aerotek entered into a staffing agreement with SunEdison in May 2013, according to documents filed in court.

Brocade down, in line

Brocade’s 1.375% convertibles due 2020 were down about 2 to 3 points on an outright basis to 96 as shares plunged 14% to $9.19.

Brocade “nuked straight down,” trading around 96 despite the news, which was viewed as generally credit negative, a trader said.

It is “holding in from a lower dollar perspective,” the trader said.

The Ruckus Wireless acquisition, with a transaction valued of about $1.2 billion, is expected to help Brocade strengthen its position as a pure-play networking company. According to the company’s news release, the combined company is expected to be No. 1 in storage area networking and service provider wireless, No. 2 in data center networking, and No. 3 in enterprise wireless LAN and enterprise edge networking in the United States and Europe, Middle East and Asia.

Under the terms of the agreement, Ruckus shareholders will receive $6.45 in cash and 0.75 of a share of Brocade common stock for each share of Ruckus commons stock.

The transaction values Ruckus at a price of $14.43 per share, or about $1.5 billion. The cash portion of the purchase price will be funded through a combination of cash on hand and new bank term loan financing.

The deal is expected to close in Brocade’s third fiscal quarter.

Brocade has increased its stock repurchase program by $800 million bringing the total remaining amount authorized under the program to about $1.7 billion.

Mentioned in this article:

Anacor Pharmaceuticals Inc. Nasdaq: ANAC

Brocade Communications Systems Inc. Nasdaq: BRCD

Lam Research Corp. Nasdaq: LRCX

SunEdison Inc. Nasdaq: SUNE

Tesla Motors Inc. Nasdaq: TSLA

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