New PennyMac ekes out small gain; Arbor Realty to price; Chesapeake falls sharply

By Rebecca Melvin

New York, Nov. 5 – PennyMac Corp.’s new 5.5% exchangeables eked out a small gain on thin volume on their market debut on Tuesday after the California-based real estate investment trust priced $200 million of the five-year notes at revised price talk points, which were beyond the cheap end of initial 4.75% to 5.25% coupon talk and at the cheap end of initial 10% to 15% talk for the initial conversion premium.

The PennyMac senior notes changed hands at 100.25 at late morning. PennyMac shares were also up fractionally. They turned lower in afternoon trade to close down 12 cents, or 0.5%, to $22.55.

They were “slightly higher than issue; all trades have been issue or higher,” a New York-based market source said around midday, noting “very low” volume.

New York-based REIT Arbor Realty Trust Inc. announced after the market close that it plans to price $215 million of new three-year convertible notes, subject to market conditions.

Some of the proceeds of the new notes will be used to exchange older notes, including $115 million outstanding of its 5.25% convertible senior notes due 2021 and $149.5 million of its 5.25% convertible senior notes due 2021. The exchange is for cash and shares of the company’s common stock.

In secondary market action, Chesapeake Energy Corp.’s 5.5% convertibles due 2026, a $1.1 billion issue that priced in 2016, fell sharply and was a top volume issue on Tuesday after the Oklahoma-based oil and gas company reported quarterly earnings that missed estimates.

The Chesapeake bonds traded at 50, which was down 7 points on the day, as the underlying common stock dropped 28 cents, or 18%, to $1.28.

Chesapeake reported a net loss that narrowed to $101 million, or 6 cents per share, from $169 million, or 19 cents per share, in the year-earlier period. But excluding non-recurring items, adjusted loss per share widened to 11 cents from 1 cent.

Total revenue declined 14.8% to $2.06 billion, which was below sales estimates of $2.12 billion as a miss in marketing revenue offset a slight beat in oil and gas revenue.

Meanwhile, the company is suffering from a glut of natural gas in the United States, which has kept prices painfully low, so it has been shifting capital expenditures to oil production. Certain terms of its loan agreements will tighten over the next four quarters, which increases the likelihood of a debt default. The company said it had $9.13 billion of long-term debt as of Sept. 30.

The company also said that it is looking to achieve free cash flow in 2020. It is lowering its capital expenditure forecast by about 30% in 2020. Simultaneously it will lower production.

The company also said there was substantial doubt about its ability to continue as a going concern if oil and gas prices don’t rise.

Coupa Software Inc.’s convertibles, a 0.125% bond due 2025, fell on Tuesday along with the underlying common stock of the San Mateo, Calif.-based internet software and services company. The bonds traded at 109.1, which was down nearly 6 points, according to Trace data. The shares closed lower by $6.33, or 4.6%, to $130.37.

PennyMac ekes out gain

The new PennyMac exchangeables were better on the break, a market source noted, but just barely.

Pricing of the Rule 144A notes came at the price points of revised talk. Initially the deal was being talked at a 4.75% to 5.25% yield with an initial exchange premium of 10% to 15%.

The company is a subsidiary of PennyMac Mortgage Investment Trust, which is guarantor of the notes.

J.P. Morgan Securities LLC and Morgan Stanley & Co. LLC were joint bookrunners of the deal, which has a $30 million greenshoe.

The notes are non-callable, and there is an investor put upon a fundamental change.

The proceeds are earmarked for general corporate purposes, including funding the investment activity of PennyMac and its subsidiaries, which may include investments in credit risk transfer securities, mortgage servicing rights, mortgage-backed securities and new products such as home equity lines of credit or prime, non-qualified mortgage loans, as well as the repayment of debt and working capital.

Westlake Village, Calif.-based PennyMac is a real estate investment trust.

Mentioned in this article:

Arbor Realty Trust Inc. NYSE: ABR

Chesapeake Energy Corp. NYSE: CHK

Coupa Software Inc. Nasdaq: COUP

PennyMac Mortgage Investment Trust NYSE: PMT

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