Newmont convertible notes rise on dividend news; Whiting paper declines after downgrade

By Stephanie N. Rotondo

Seattle, Feb. 12 – Newmont Mining Corp. was trading actively in the convertible bond market on Friday following the company’s announcement of a dividend payment on its common stock.

However, one trader opined that perhaps the 1.625% convertible notes due July 2017 were not accurately priced.

“It makes no sense,” the trader said, seeing the issue trade with a 101 handle, which he deemed a premium of over 100%. “It’s trading 0.3% to maturity, up 76%. That makes no sense.”

The trader added that there “has to be some underlying dynamic” that is keeping the bonds lifted – though he further commented that it was not the “spectacular” terms of the securities.

Newmont’s stock was up 74 cents, or 2.96%, at $25.78.

Newmont will pay 2.5 cents per share to holders on March 24.

Also busy were Whiting Petroleum Corp.’s 1.25% convertible notes due 2020, though that action was to the downside.

A trader said the paper traded at 30 early in the session, which compared to levels around 40 as of Thursday’s close.

However, the paper improved intraday, ending in a 34.25 to 34.5 context.

The stock was meantime initially trading down to $4.40 from $4.90, according to the trader. But even that pared some of its losses, ending off 41 cents, or 8.35%, at $4.50.

The trader speculated that despite a bounce in oil prices on Friday – the commodity was up over 8% at mid-morning – Whiting was playing a game of catch-up with some of its peers. When oil prices first started to decline, the trader explained, some bonds shook it off, not believing that the weakness would last. But as prices have stayed depressed for about a year and a half, some credits, such as Whiting, are now feeling the “accumulative” effect of the drop.

That, however, begs the question, the trader said: “How many months behind the other guys are they?”

It should also be noted that Whiting was downgraded by Moody’s Investors Service on Thursday to Caa1 from Ba2. The rating agency cited the likelihood of weak cash flows this year and into the next as hedges start to expire. On top of that, the oil and gas producer has a heavy debt load, increasing the possibility of a debt restructuring.

“While we recognize the steps that Whiting has undertaken in response to weak pricing levels, we believe the ability to further adjust to a lower price environment will be more challenging and the timing and execution of asset sales more uncertain,” Moody’s said in its statement.

Mentioned in this article:

Newmont Mining Corp. NYSE: NEM

Whiting Petroleum Corp. NYSE: WLL

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