Convertibles trading muted; Peabody retreats from highs; Chesapeake, Stone off with oil

By Stephanie N. Rotondo

Seattle, Oct. 25 – The energy space was again eyed by convertible bond investors in Tuesday trading.

However, a trader commented that “volume is still very low,” especially given that the last few weeks have included Jewish holidays.

Peabody Energy Corp.’s 4.75% convertible junior subordinated debentures due 2066 were yet again the dominating security, a trend that has been occurring for at least the last week.

A trader said the issue moved all the way up to 26 in early trading, though it drifted in to a “25 to 25.25 area” by mid-morning.

“It feels like they are losing steam,” he said.

And indeed the convertibles lost steam, finishing up at the lows of the day around 19.

“They went up fast on speculation,” said one trader. “They can go down just as fast.”

Even the equity was losing some of its luster. After popping nearly 52% in Monday trading, the stock declined $5.74, or 35.71%, to $10.33.

The name has been on a tear of late, in both the convertibles and straight bond markets. The gains have been largely attributed to rising coal prices.

Meanwhile, Chesapeake Energy Corp.’s 5.5% convertible senior notes due 2026 were also busy and initially better, according to a trader.

He said the bonds were at 102.5 to 102.75 ahead of the open, versus Monday’s closing share price of $6.36. By mid-morning, the paper had traded up to “between 102.5 and 103.5.”

“That’s where all the volume is,” he said of the range.

But like Peabody, the notes drifted off by the end of business, closing around the 101 mark.

Still, the trader said the convertibles remained attractive to investors, given its high coupon.

Elsewhere in oil, Stone Energy Corp.’s 1.75% convertible notes due 2017 were not as active as Peabody or Chesapeake but still somewhat busy. The bonds were pegged in a 61.5 to 62 context.

One market source called that up 9 points outright on the day.

Last week, Stone Energy said it had inked a restructuring support agreement with about 84% of its noteholders. On the news, a market source said that didn’t leave too many notes outstanding to trade.

Under the terms of the RSA, Stone will file for bankruptcy protections by Dec. 9.

As for the stock underlying the debt, it was down 47 cents, or 9.65%, at $4.40.

The oil names were also dealing with another decline in domestic crude oil, which was prompted by concerns about a potential stockpile build and the ongoing drama of OPEC’s proposed production cut.

West Texas Intermediate fell 1.41% to $49.81.

Mentioned in this article:

Chesapeake Energy Corp. NYSE: CHK

Peabody Energy Corp. OTCBB: BTUUQ

Stone Energy Corp. NYSE: SGY

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