New Cemex convertibles slip, ReneSola steady; CEDC adds; NetApp off outright, up on hedge

By Rebecca Melvin

New York, March 10 - Cemex SAB de CV's newly priced 3.25% and 3.75% convertibles slipped a little on their debut Thursday amid a selloff in the broader markets and a lower price for Cemex's stock.

The new Cemex 3.25% five-year paper traded right around par or a little below, and the 3.75% seven-year paper was last at 99.375, market sources said.

"It's been pretty quiet away from the underwriter," a Connecticut-based sellside trader said of Cemex.

ReneSola Ltd.'s newly priced 4.125% convertibles were steady at about 100.5 in quiet trade for much of its secondary debut although its shares were solidly higher and after falling into mostly outright hands.

Central European Distribution Corp.'s convertibles moved up however despite lower shares in active trade after a company conference call that left the underlying shares solidly lower.

"The bonds are up a point or so. There was nothing [in the call] to drive them way higher," he said. It's simply that "the convertibles are short-dated paper and disconnected from the stock."

NetApp Inc.'s convertibles sank outright, along with a drop in the underlying shares, but were slightly better on a hedged basis. The Sunnyvale, Calif.-based data-storage-equipment maker announced plans to buy a storage-systems business from LSI Corp. for $480 million.

Cemex slips

Cemex's 3.25% A tranche convertibles due 2016 traded at 99.75 bid, 100.125 offered during the session and near the close were 99.625 versus a share price of $8.68.

The Cemex 3.75% B tranche convertibles due 2018 were 99.5 bid, 99.875 offered during the session and were seen settling at 99.375 versus the $8.68 share price.

The weakness was attributed to lower shares. The American Depositary Shares of the cement producer based in Monterrey, Mexico, closed down 8 cents, or nearly 1%, at $8.60.

"The market sold off significantly," a syndicate source said by way of explaining the weakness in the new deal.

When asked if the weakness had anything to do with the fact that it was a very large $1.4 billion deal and there may have been excess supply pressuring the price, the syndicate source said, "Demand has been higher generally, so that wasn't likely to be a factor."

Cemex priced dual tranches totaling $1.4 billion of five- and seven-year convertibles. The five-year tranche was upsized during the session by $200 million to $800 million.

A Connecticut-based sellside trader concurred that the size was not a factor and performance depends on pricing. "People didn't love it," he said.

A Connecticut-based sellside analyst said his valuation of the new paper was "neutral," but that he liked the company's future and how the new convertibles set up.

Pricing came at the midpoint of talk, which was for a 3% to 3.5% coupon and a 27.5% to 32.5% initial conversion premium for the 2016 notes and for a 3.5% to 4% coupon and a 27.5% to 32.5% initial conversion premium for the 2018 notes.

The five-year tranche has an upsized greenshoe of $177.5 million; the seven-year tranche has a $90 million greenshoe.

The notes are non-callable for life, with no puts. There is takeover and dividend protection.

Concurrent capped call transactions will have a cap price 90% higher than the closing price of the company's ADSs on March 9 related to the 2016 notes and 110% higher regarding the 2018 notes.

The capped call transactions are expected to reduce potential cost to Cemex upon future conversion of the notes.

About $187 million of proceeds will be used to pay the cost of the capped call transactions. The other proceeds will be used for general corporate purposes, including debt repayment.

Bookrunners include J.P. Morgan Securities LLC, Citigroup Global Markets, Bank of America Merrill Lynch, Barclays Capital, ING, RBS Securities, BNP Paribas, Santander, BBVA and HSBC.

Co-managers include Mizuho Securities, Lazard Capital Markets, Scotia Capital, Williams Capital Group, Credit Agricole and Caja Madrid.

ReneSola at 100.5

ReneSola's newly priced 4.125% convertibles due 2018 traded up to 100.5 in trade on Thursday with its shares higher on the day, and they were quoted 100.25 bid, 100.625 offered near the close by a syndicate source.

The American Depositary Shares of the Jiashan, China, solar products company closed higher by 18 cents, or 2%, to $8.79.

A syndicate source noted that the shares had sold off on Tuesday and Wednesday after the convertibles deal was launched Monday, and therefore Thursday's solid gain amounted to only a bit of a bounce from weakness.

Despite the fact that many new issues have priced aggressively recently on the tight, or rich end of talk, ReneSola priced at the cheap end of coupon talk and at the midpoint of premium talk.

Coupon talk was 3.625% to 4.125%, and the initial conversion premium talk was 20% to 25%.

Pricing may have needed to come on the cheap end because investors are typically leery of foreign solar companies such as this one, and in addition there are regulatory concerns with the whole industry in various countries, including in Italy and the United States, the syndicate source said.

Last year, the regulatory uncertainty involved Spain and Germany.

Nevertheless, ReneSola represents a solid name among solar companies. It is trying to get into the U.S. market, and it has better debt levels and debt and capital ratios than many of its competitors, the syndicate source said.

While the coupon was higher at 4.125%, other solar convertibles are yielding more than this.

Joint bookrunners of the deal were Credit Suisse and Barclays Capital Inc., and there is a $25 million greenshoe.

The bonds are non-callable for life and will be settled for shares. They have standard takeover and dividend protection.

In connection with the offering, ReneSola entered into a capped call transaction with an affiliate of an initial purchaser of the notes. The transaction had the effect of boosting the initial conversion premium from ReneSola's perspective to 75%.

Proceeds are expected to be used to expand the company's polysilicon production capacity and to purchase the capped call.

Zack's Investment Research says "the company's fortunes look good due to its geographically diversified customer base, ongoing expansion programs, a subsidy program in China, improving operating efficiencies, rising margins and material cost savings."

CEDC adds points

Central European Distribution's 3% convertibles due 2013 traded up 2 points to more than 87 in active trade and ended the session higher by a little more than a point, market sources said.

Shares of the Polish company, with U.S. headquarters in Pennsylvania, ended down 55 cents, or 4%, at $12.49.

The company held an investor call Thursday to clear up a matter from its recent earnings call, including how the company intends to address breach-of-covenant issues.

Due to its fourth-quarter earnings "miss," as chief executive officer and president William Carey put it, CEDC breached certain covenants related to its consolidated coverage ratio and net leverage ratio covenants on its bank debt held by Citibank and Westpac Banking Corp. The company was able to secure a waiver for the period ending Dec. 31 and was also allowed to amend the coverage ratios through March 31.

However, CEDC now has until June 30 to agree to new terms on the $43 million four-year term facility and $41 million over-draft facility. If the company and its lenders cannot come to terms, the lenders can accelerate payment.

Still, Carey said the company didn't view the breach as "material."

"We are working with the banks to sort out a longer term solution and at the same time looking at other options," he said during the call. Those options could include a debt-for-debt repurchase, he said.

Carey noted that CEDC hopes to resolve the matter within 60 days to 90 days.

In return for the waiver, CEDC paid a fee to the lenders. The base rate on the facilities was also increased by 200 basis points.

NetApp sinks outright

News late Wednesday that NetApp would acquire Engenio, the storage-systems business of LSI, contributed to a selloff in that name as stock investors worried that the opportunistic expansion, while potentially a smart move, could temper revenue and profit margins at least in the short term.

NetApp's 1.75% convertibles due 2013 were more active than normal because of the stock move, a New York-based sellside trader said. But on a dollar-neutral basis they looked about 0.25 point to 0.75 point better.

The NetApp 1.75s were at 158.275 bid, 158.875 offered versus a share price of $48.00 at mid-afternoon. That was down 6-plus points on an outright basis.

Shares of the data-storage company ended the session down $3.13, or 6%, at $48.41.

The bonds have typically been traded on a heavy delta.

Mentioned in this article:

Central European Distribution Corp. Nasdaq: CEDC

Cemex SAB de CV NYSE: ADS: CX

NetApp Inc. Nasdaq: NTAP

ReneSola Ltd. NYSE: ADS: SOL

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