By Rebecca Melvin
New York, Oct. 9 – Convertibles were lower across the board on Thursday, with the energy sector one of the hardest hit areas as crude oil prices continued to tumble.
The amount of decline among convertible issues was dependent on “the risk, but energy names were taking the majority of the pain,” a New York-based trader said.
“With oil and natural gas selling off, that’s been the focus, and their stocks have been cratering relative to other sectors,” he said.
Coal names including Alpha Natural Resources Inc. and Peabody Energy Corp., fell in active trade.
Cobalt International Energy Inc. and Chesapeake Energy Corp. remained active, and Energy XXI (Bermuda) Ltd.’s 3% convertibles due Dec. 15, 2018, which tumbled 4.5 points to 5 points on Wednesday, were weaker again, a trader said.
The session started out quiet, with market players watching equities begin to sell off again following two days of whipsaw action, including Wednesday’s rally.
“No one is doing much of anything; everyone is feeling pretty whipsawed,” a New York-based trader said of market action early Thursday.
But “things got bad pretty quickly,” a second trader said, with sellers stepping in.
Given liquidity issues, convertibles didn’t have the opportunity to recover late Wednesday between routs as equities did, the trader said.
The extent of the damage wasn’t known as pricing was still moving around at the end of the day.
“We’ll see where things will shake out,” the trader said.
Alcoa Inc.’s 5.375% mandatory convertible preferreds were down a little in light volume but outperformed shares after the New York-based aluminum producer reported strong quarterly results.
Earnings weren’t generally a focus in convertibles as most market players were fixed on the idiosyncratic trends of the current market, a trader said.
“No one is really focusing on that yet; Alcoa reports a week before anyone else. We’ll see; outside of earnings, there is not much to change the [current] tune,” the trader said.
But Auxilium Pharmaceuticals Inc.’s 1.5% convertibles of 2018 were very actively traded and higher by 9 points on an outright basis at 141.5, with shares up 9% at $32.44.
Endo International plc announced that it has agreed to acquire the Malvern, Pa.-based specialty pharmaceutical company in a cash-and-stock deal valued at about $2.6 billion.
Auxilium rejected an earlier $2.2 billion offer. So Endo will pay $33.25 a share, up from $28.10 a share initially offered. Auxilium shares rose $2.68, or 9%, to $32.44.
Sesa Sterlite Ltd.’s 4% convertibles, which mature at the end of this month, were seen at 99.5. The American Depositary Shares of the Indian natural resources company were up 0.9% at $16.87 but still near lows notched during a slide that started last month.
Equities slid sharply lower. The S&P 500 stock index lost 40.68 points, or 2%, to 1,928.21.
Anacor Pharmaceuticals Inc. was slated to price $70 million of seven-year convertible senior notes after the market close.
Coal, oil get crushed
Alpha Natural’s 3.75% convertibles due 2017 fell more than 8 points to 56. Shares of the Bristol, Va.-based coal producer fell 24 cents, or 11%, to $1.92.
Peabody Energy’s 4.75% convertibles due 2066 fell in active trade to 65.125. That was down a handful of points, with shares of the St. Louis-based coal producer dropping $1.04, or 9%, to $10.24.
Cobalt International’s issue of 3.125% convertibles, which was a $1.15 billion issue, fell more than 4 points to 77.90 on top of a nearly 5-point drop on Tuesday.
Shares of the Houston-based oil and gas company fell $1.03, or 8%, to $11.66.
Amid a supply glut, concerns about economic growth and potentially dampened global demand have sent oil prices plunging in recent weeks. On Thursday, they fell below $90 per barrel for the first time in more than two years.
In the United States, light sweet crude for November delivery fell $1.54, or 1.8%, to $85.77. After the market closed, the contract sagged further.
Both U.S. and Brent crude are trading more than 20% below their recent highs.
Questions remain whether the Organization of the Petroleum Exporting Countries will cut production to bolster prices. Energy stocks closed on their lows.
Alcoa mandatory outperforms
Alcoa’s mandatory preferred shares were last at $48.68, which was down 2.7%, compared to the common shares, which ended down 4.2% to $15.39.
“Alcoa is going to be added to the PFF preferred stock index, and people are waiting until that happens,” a trader said by way of explaining light trade in the early going.
Alcoa reported earnings of $149 million, or 12 cents a share, in the third quarter, up from $24 million, or 2 cents a share, a year ago. Excluding one-time items, Alcoa earned 31 cents a share, which was better than analysts’ expectations for earnings of 22 cents a share.
Mentioned in this article:
Alcoa Inc. NYSE: AA
| Alcoa mandatory: | NYSE: AA-PRB
|
| Alpha Natural Resources Inc. | NYSE: ANR
|
| Anacor Pharmaceuticals Inc. | Nasdaq: ANAC
|
| Chesapeake Energy Corp. NYSE: CHK
|
| Cobalt International Energy Inc. | NYSE: CIE
|
| Energy XXI (Bermuda) Ltd. | Nasdaq: EXXI
|
| Peabody Energy Corp. | NYSE: BTU
|
© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere.
For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.
