Ensco, Whiting Petroleum outperform; CalAtlantic issues trade on merger news; Chart on tap

By Rebecca Melvin

New York, Oct. 30 – U.S. convertibles moved in tandem with the broader markets on Monday, with valuations little changed, except for some expansion in oilfield services names like Ensco plc and Whiting Petroleum Corp., market sources said.

In the broader markets, U.S. equity indexes rose smartly in early trading and convertibles followed suit. But then stocks reversed course with many names falling into negative territory or ending little changed, and convertible issues did likewise, but were steady on a dollar-neutral, or hedged, basis.

Both Ensco and Whiting appeared to have expanded by 0.375 point to 0.5 point, a New York-based trader said.

At late morning, Ensco’s 3% convertibles due 2024 were seen higher by more than 1.5 points at 85.375, and Whiting Petroleum’s 1.25% convertibles due 2020 were up 0.75 point at 90.125, while the underlying bonds saw more muted moves.

Elsewhere, CalAtlantic Group Inc.’s 1.625% convertibles due 2018 surged on an outright basis after news that the Arlington, Va.-based home builder is being bought by competitor Lennar Corp. in a deal totaling $9.3 billion, including $6 billion of CalAtlantic debt.

The CalAtlantic 1.625% convertibles were seen higher by more than 28 points to 157.7, and the CalAtlantic 0.25% convertibles due 2019 were trading even more actively at 99.97. CalAtlantic shares surged $8.60, or 21%, to $49.04.

Convertibles market players queried were not active in this name.

In primary market action, Chart Industries Inc. announced after the market close that it plans to price $225 million of seven-year convertible senior notes.

The Chart deal was being sold via joint bookrunners Morgan Stanley & Co. LLC and J.P. Morgan Securities LLC and co-manager Raymond James.

The Rule 144A notes, a portion of which will be used to buy back Chart’s existing convertible issue, were talked at a 1% to 1.5% yield and a 30% to 35% initial conversion premium.

The new deal is coming with a concurrent call spread. It follows on the heels of a couple of new issues that priced last week, but comes to a market that has been almost completely silent in October, as third-quarter blackout periods and other factors doused issuance.

A syndicate source said that more deals can be expected this quarter but believed that the primary market overall was “going to be pretty quiet. It’s not going to change a ton.”

The quiet spell has descended despite solid economic growth, high stock prices and the expectation of rising rates, which would typically be markers for a strong convertibles primary market. But on the other hand, it wasn’t a big year to refinance, the syndicate source pointed out.

“The majority of companies that were going to refinance have already done so. Next year there will be more refinancing,” the source said.

Back in secondary market action, Intel Corp.’s sister convertible bond issues were up on an outright basis and remained active in trade early on Monday after the issues accounted for the lion’s share of market action on Friday. Friday’s boost followed the chip maker’s positive quarterly results and raised guidance.

The Intel 3.25% convertibles due 2039 were again at the top of the volume chart albeit on a lesser dollar amount, according to Trace data. The price of the equity sensitive 3.25% Intel bonds were up another few points at 215 after surging 14 points on Friday.

The Intel 3.493% convertibles due 2039 gained another 1.5 points to 165 following a 9-point climb on Friday.

Intel shares gained another couple of percentage points to $45.15 before pulling back to $44.78, which was up nearly 1%.

Also in follow-on action, China Lodging Group Ltd.’s new 0.375% convertible notes were mostly steady at 101.265 as shares of the Shanghai-based hotel group slipped 2%.

China Lodging priced $425 million of the five-year notes beyond the tight end of coupon talk and at the tight end of premium talk late Thursday. The bonds gained 1.5 points to 1.75 points on a dollar-neutral, or hedged, basis when they debuted in the market on Friday.

China Lodging shares were down $2.80, or 2.2%, to $128.77.

International convertibles

In overseas markets, there were a few new deals. Taiwan’s Hon Hai Precision Industry Co. Ltd. priced $500 million of 0% unsecured overseas convertible bonds due 2022 at par with an initial conversion premium of 30%, according to a news release.

Proceeds will be used to buy raw materials overseas and to save interest expense for the maker of computer connectors and cable assemblies.

And Fugro NV launched and priced €100 million of 4.5% seven-year subordinated unsecured convertible bonds at par with an initial conversion premium of 42.5%.

The Netherlands-based geotechnical, survey, subsea and geoscience services company plans to use proceeds to boost financial flexibility and to repay senior debt.

Price talk was for a coupon of 4% to 4.5% and a conversion premium of 40% to 50% over the volume weighted average price of the company’s common share certificates quoted on Euronext Amsterdam on Monday. A final conversion price was to be set late Monday.

Mentioned in this article:

CalAtlantic Group Inc. NYSE: CAA

Chart Industries Inc. Nasdaq: GTLS

China Lodging Group Ltd. Nasdaq: ADR: HTHT

Ensco plc NYSE: ESV

Fugro NV Amsterdam: FUR

Hon Hai Precision Industry Co. Ltd. Taiwan: 2317

Intel Corp. Nasdaq: INTC

Whiting Petroleum Corp. NYSE: WLL

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