Morning Commentary: Convertible bonds muted but volatility could be ahead; Delek buying out Alon

By Stephanie N. Rotondo

Seattle, Jan. 3 – Convertible bond market players were biding their time as 2017 started, with many opting to get their bearings before jumping into trading.

“It’s slower than Friday [before New Year’s],” a trader said. “People must be marking their books or something.”

Still, once the market got settled, the trader said he expected the primary space to churn out deals, especially given that December was on the livelier side.

“The prospect of higher rates is good for converts because that means guys will issue [ahead of any increases],” the trader said.

The trader also noted that the market was “waiting for the market to rollover too, so that will help.”

It was announced on Tuesday that Alon USA Energy Inc. was being bought by Delek U.S. Holdings Inc. for $464 million in an all-equity deal.

Delek already owned about 47% of the company.

A trader said the all-stock offer was “a big positive for convertibles guys when the bond is in the money.”

However, the trader added that the 3% convertible notes due 2018 hadn’t traded much, though he opined the issue should be in a 109.5 to 110 context versus the $12.50 stock price.

The underlying equity (NYSE: ALJ) was up about 10% in early dealings.

© 2015 Prospect News.
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