With books closing three to four times oversubscribed, an $85 million deal for Ambit Microsystems was priced at London's close yesterday (Tuesday) after a one-day marketing period. Led by Goldman Sachs, with Credit Suisse First Boston as joint-lead, the five-year deal came at the mid-point of its indicative range.
Priced at par with a zero coupon and a two-and-a-half year put, there is a conversion premium of 15.5% to a closing price of NT$161, a yield-to-maturity of 4%, a put price of 110.4% and redemption price of 121.9%. Indicative terms had comprised a 13% to 18% conversion premium, yield-to-put of 3.75% to 4.25%, put price of 109.7% to 111.1% and redemption price of 120.4% to 123.4%.
There is also hard no call for two years, thereafter subject to a 115% hurdle and annual re-sets subject to an 80% floor. Co-managers are ABN AMRO, Citibank, Chinatrust, SG Securities and UBS Warburg.
Because of a complete lack of borrow in the stock, Ambit's terms were always likely to be slightly wider than both Macronix and Siliconware Precision Industries (SPIL) which preceded it and have some borrow available.
In terms of credit spread, observers report that Ambit is being bid at 370bp over Libor in the asset swap market against 375bp for Macronix and 325bp for SPIL. Although the company is not formally rated, specialists believe that it is an implied BB credit, with the rating underpinned by a clean balance sheet and constrained by a small market capitalization of about $1 billion.
Because the convertible marks Ambit's first equity-linked deal, credit lines will have been free and investors attracted by strong ratios. In terms of total debt to capitalization, for example, the company stands at 6.7% versus 16.8% for Macronix, 31.1% for SPIL and 31.5% for Ritek. Similarly an EBITDA to gross interest coverage ratio of 242 times 2001 earnings compares favourably with Macronix's ratio of12 times and Ritek's 3.4 times.
Specialists say that over 50% of the book was distributed to outright CB investors, with healthy interest from CB volatility investors and fixed income investors. There was also small participation from pure equity investors. On the break of secondary market trading the deal was quoted at 100% to 100.375%.
Non-syndicate bankers describe Ambit as an appealing credit, whose bond is likely to surprise on the upside. Terms have also been deemed fair, though some specialists note the recent trend towards much lower bond floors. Although longer maturities have been partly responsible for pushing bond floors down to the low 90s area, bankers say that the level of recent deals has been quite surprising given the lack of stock borrow for the majority of Taiwanese companies.
Based on a credit spread of 370bp, Ambit has a bond floor of 92.1%. As one CB expert concludes, "Investors appear to be willing to pay quite a lot of money for the equity option. When we last saw Taiwanese deals hitting the two-year mark, investors tended to pay about five points. Now they seem to be paying eight points or more for two-and-a-half years."
Ambit, a market leader in ADSL (asymmetric digital subscriber line) manufacturing is 19% owned by Acer Inc, which raised $56 million via a secondary sale of Ambit stock led by Goldman in January.