Energy names weak; Whiting Petroleum notes drop below 70; trading light but Qihoo active

By Rebecca Melvin

New York, Dec. 18 – Convertibles players on Friday were watching energy names, which were weaker in light volume, as concerns about low oil prices and global oversupply dragged equity markets lower.

“Not much is trading, but energy continues to be weak,” a Connecticut-based trader said.

An exception to the generally quiet market was Qihoo 360 Technology Co. Ltd. The Qihoo convertibles were active after the company said in a regulatory filing that holders can put the bonds at par plus accrued interest if the company goes private, as planned.

The China PC and mobile internet security company entered into a definitive merger agreement in June to be acquired by a consortium of investors for $9.3 billion in cash, including the redemption of debt.

The Qihoo 0.5% convertibles due 2020 were better by a point or more, trading at 96.8.

The Qihoo 2.5% convertibles due 2018 were little changed at 98.375, and the Qihoo 1.75% convertibles were not heard in trade.

For the week, U.S. convertibles lost 0.35% as equities and high-yield debt sold off and valuations weakened, according to Barclays convertibles research.

The equities underlying convertibles lost 0.56%, compared to the S&P 500 stock index, which was off 0.46% and the Russell 2000, which was off 1.14%.

High-yield spreads were 24 basis points wider at the end of the week at 659 basis points, with the index down 1.34%, but investment-grade credit spreads were only 7 bps wider at 165 bps. Meanwhile Treasuries lost 0.12% for both five- and seven-year notes, Barclays said.

Total Trace volumes of convertibles that changed hands was $6.7 billion, which was higher than the average $5.9 billion for the year to date.

For the year so far, U.S. convertibles have lost 2.1%, compared to a 6.2% loss for the equities underlying the convertible paper, Barclays said in a note published on Friday. Meanwhile the SPX is up 1.2% for the year to date, while the Russell 2000 stock index is down 4.5%.

Back in energy names, Whiting Petroleum Corp.’s convertibles traded down to 68.5 to 69 in early trade after an early 70 print, the trader said. And at the end of the session the Whiting convertibles were indicated down to 66.6, according to a market source.

Chesapeake Energy Corp.’s convertibles were also quoted lower without a trade, he said. But the Chesapeake Energy 2.25% convertibles were indicated to have dropped to about 27 from 33.6, according to a market source. And Stone Energy Corp.’s 1.75% convertibles were indicated to have dropped nearly 10 points to 73.75 from 83.43, while shares of Stone Energy fell 26 cents, or 6.5%, to $3.76.

Worries festered amid a lack-of-supply response from the Organization of Petroleum Exporting Countries, which will mean continued high levels of production, even as Iran resumes production and begins to add to the global market.

Oil prices extended losses. West Texas intermediate crude for January delivery slipped another $0.72, or 2%, to $34.80 per barrel.

The S&P 500 stock index fell 36.37 points, or 1.8%, to 2,005.52, on top of a 1.5% decline on Thursday. The Dow Jones industrial average fell 367.39 points, or 2.1%, to 17,128.45, and the Nasdaq Composite index lost 79.47 points, or 1.6%, to 4,923.08.

Mentioned in this article:

Chesapeake Energy Corp. NYSE: CHK

Qihoo 360 Technology Co. Ltd. Nasdaq: QIHU

Stone Energy Corp. NYSE: SGY

Whiting Petroleum Corp. NYSE: WLL

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