Cobalt International drops outright, on hedge; SunEdison still strengthening; Ford weak

By Rebecca Melvin

New York, Dec. 19 - Cobalt International Energy Inc.' convertibles took another leg down in active trade Thursday after the Houston-based oil and gas exploration company reported that its Gulf of Mexico Aegean #1 exploratory well didn't encounter commercial hydrocarbons after reaching its objective total depth.

Cobalt's 2.625% convertibles due 2019 fell outright by 3.7 points to 82.8, according to Trace data.

The Cobalt convertible also contracted 1.5 points to 1.75 points on a dollar-neutral, or hedged, basis, compared to Wednesday, a New York-based trader said.

SunEdison Inc.'s $1.2 billion of convertibles, which priced a week ago, were continuing to trade fairly actively and still on the upswing, a syndicate source said. The SunEdison A tranche has improved by 4 points on swap from issue, while SunEdison's B tranche is up 3 points on swap from issue, the syndicate source said.

USEC Inc.'s 3% convertibles due October 2014 continued to toggle back and forth in the low 30s after news Monday that the Bethesda, Md.-based supplier of nuclear fuel and services reached an agreement with most noteholders that will allow the company to file for Chapter 11 bankruptcy. The bonds had been at about 20 prior to the news. On Thursday they changed hands at 32.25, which was up 0.75 point on the day, according to Trace data.

Meanwhile, Ford Motor Co. remained weak in a continuation of trading action from Wednesday when the Dearborn, Mich.-based auto maker released disappointing 2014 profit guidance.

Elsewhere, convertibles were pretty quiet early Thursday as market players began to anticipate the upcoming Christmas and New Year's holidays beginning next week.

Stocks were narrowly mixed the day after a rally on news that the Federal Reserve will begin tapering by a modest $10 billion a month in January.

Gold prices fell to the lowest level in three years. Gold for February delivery plunged $41.40, or 3.4%, to $1,193.60 an ounce. It hadn't closed below $1,200 an ounce since August 2010. It went as high as $1,900 an ounce in August 2011.

The S&P 500 stock index slipped 1.05 points to 1,809.60, the Dow Jones industrial average added 11.11 points to 16,179.08 after surging 292.71 points, or 1.8%, on Wednesday, and the Nasdaq stock market shed 11.93 points, or 0.3%, to 4,058.13.

Cobalt 'getting killed'

Cobalt's s 2.625% convertibles due 2019 fell outright by3.7 points to 82.8 in early action, according to Trace data. At the end of the session, they were 84.16 versus a closing share price of $14.84, which was down 82 cents, or 5.2%, on the day.

"It's getting killed," the trader said at late morning when asked how the issue was doing on a hedged basis. Cobalt shares were down nearly 9% at that time.

A second market source called the situation "ugly."

Meanwhile, the Cobalt bond has been hemorrhaging for several weeks. On Dec. 2, the securities tumbled by more than 6 points to 93.125 bid, 93.625 offered and contracted 0.25 point to 0.375 point on a dollar-neutral basis when the delta was around 50% from 60% and the shares dropped 16.6%. The moves followed disappointing news about more natural gas being found than expected in Cobalt's Lontra well off of Angola.

SunEdison strengthening

SunEdison's 2% five-year convertibles, or the A tranche, due 2018 closed at 110 on Thursday with the shares up 3.7% on the day at $12.64. That was up from 107.5 bid, 108.5 offered with the underlying shares at $12.28 on Tuesday. The hedged gain from issue is 4 points.

SunEdison's 2.75% seven-year convertibles, or the B tranche, ended the session up at 109.5, which was up from 107 bid, 108 offered on Tuesday, and those bonds have gained 3 points dollar neutral from issue.

It is trading well especially considering its large size at $1.2 billion, a syndicate source said. In size, it trails the recent Yahoo! Inc. $1.25 billion 0% convertible deal priced Nov. 20, but in terms of pricing, it has outperformed. "Yahoo! traded awful out of the gate," the syndicate source said.

On their debut in the market on Friday, the B tranche was quoted at 100.875 bid, 101.875 offered versus an underlying share price of $11.35.

Mentioned in this article:

Cobalt International Energy Inc. NYSE: CIE

Ford Motor Co. NYSE: F

SunEdison Inc. Nasdaq: SUNE

USEC Inc. NYSE: USU

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