Convertibles follow equities, oil lower after firmer start; Cobalt down; Iconix better bid

By Rebecca Melvin

New York, Jan. 12 – U.S. convertibles players turned sellers in afternoon trading on Tuesday in a turnaround that tracked equities and crude oil prices lower. Volume was pretty light, however, market sources said.

“This morning it seemed well bid for, but things have faded over the afternoon,” a New York-based trader said of the convertibles market.

The catalyst that brought equities down appeared to be a renewed sell-off in crude oil. But the catalyst that took oil lower was unclear.

“Oil is breaking $30 [per barrel] as we speak. I don’t know what triggered oil to sell off, but as oil sold off, equities sold off, and convertibles eventually followed suit,” the trader said.

“People were better to buy this morning,” he said, referring to the fact that there were more bids in the early market.

West Texas Intermediate crude oil for February delivery breached $30.00 per barrel intraday but ended above that mark and was last at $30.53 per barrel, which was down 88 cents, or 2.8% on the day. Meanwhile, equities staged a late-session rally.

Cobalt International Energy Inc.’s convertible bonds, which were quiet in the morning, succumbed to the weight of weaker oil and slipped as shares of the Houston-based oil-focused exploration and production company fell 7%. That move was on top of an 8% move down on Monday.

Elsewhere, a bid resumed in Iconix Brand Group Inc.’s 2.5% convertible bonds, although pricing was little changed, after a report that Advent Capital Management LLC has suggested refinancing the 2.5% convertibles and volunteered to participate if the company did a deal, market sources said.

In addition FireEye Inc. traded a little lower, following the share price – which has dropped sharply in recent sessions. But on Monday, shares bounced around after news that the Milpitas, Calif.-based network security company will partner with management services firm Parsons on enhanced critical infrastructure and IT services to strengthen security. FireEye’s convertible bonds were seen slightly lower on swap on Tuesday.

Cobalt weaker again

About a point was squeezed out of the Cobalt 3.125% convertibles due 2024, which were last at 42, compared to 43.125 previously, according to Trace data.

The Cobalt 2.625% convertibles due 2019, which were less actively traded, came off about 2 points and were seen at 50 from 52 previously. Cobalt shares were initially down only 2% at $3.86 shortly before noon, but they crunched lower and closed down 28 cents, or 7%, at $3.65.

Iconix 2.5% better bid

Advent Capital has proposed that holders of the 2.5% convertible buy a new convertible and that the company use the proceeds of the new deal to retire the existing 2.5% bonds,” a New York-based trader said.

Advent said it is willing to offer something, a second New York-based trader said. But an Advent Capital manager declined to comment on a potential deal.

The Iconix 2.5% convertibles, which mature in June, traded at about 82.5 on Tuesday. The bond issue has been in traders’ cross hairs recently as they eyed prospects for the company in the short term. Iconix is a New York-based brand management company that licenses and markets 35 consumer brands, including Rampage, Mudd, Candie’s and Joe Boxer.

“There was no bid late yesterday in ICON, but now the 2.5% has one,” a trader said.

There was no market in the Iconix 1.5% convertibles due 2018, but that level should be about 43 bid, 44 offered, the trader said.

Iconix shares gained 42 cents, or 8%, to $5.46.

The stock and bonds of Iconix collapsed in early November after the company announced restatements of certain financials between 2013 and 2015 and lowered its forward guidance. The 2.5% convertibles dropped below the current range to 78 to 81 at that point, which was down from 97.

FireEye wavers near lows

FireEye convertibles were a little bit weaker on Tuesday as shares continued to lag. But that was some improvement compared to the move on Monday.

“The equity was down 8.5% on Monday on nothing in particular,” a trader said.

Given where shares are currently there is the potential that market players will step back in, he said.

FirEye’s 1% convertibles due 2035, or the A tranche, were 84 on Tuesday afternoon, which was down about 0.125 point on swap, a trader said. Shares were down about 75 cents, or 4.4% at $16.61 at that point.

The FireEye 1.625% convertibles due 2035, or the B tranche, were quoted at 79.

FireEye shares closed at $16.84, which was down 53 cents, or 3.1%.

“There is the yield bogey that people will start to focus on,” the trader said of the convertible bonds, referring to the proximity of the issues’ bond floor.

Mentioned in this article:

Cobalt International Energy Inc. NYSE: CIE

FireEye Inc. Nasdaq: FEYE

Iconix Brand Group Inc. Nasdaq: ICON

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