Upcoming holiday, short week weigh on convertibles trading; Chesapeake firms on OPEC optimism

By Stephanie N. Rotondo

Seattle, Nov. 21 – As the market prepared for a short week due to Thanksgiving, the convertible debt space was seeing limited liquidity, a trader said on Monday.

“The whole week is going to be like that,” he said, adding that at mid-morning, total trading volume was just $90 million.

Chesapeake Energy Corp. was one of the day’s more active names, as oil prices surged on hopes OPEC could reach a production freeze agreement next week in Vienna.

The 5.5% convertible senior notes due 2026 started the day at 98.125, according to one New York-based sellsider. By mid-morning, the paper was trading “with a 99 handle,” the trader said.

By the close, the convertibles had traded as high as par, though most of the trades occurred with a 98 or 99 handle, according to a market source.

Chesapeake’s common shares were meantime up 42 cents, or 7.07%, at $6.36.

The trader said the gains came amid oil’s “Charlie Brown rally.”

“We’ve seen the same headlines” before, he noted. Each time an OPEC member-country – or Russia, which is not a member but has been involved in the production cut talks – says that a deal is in sight, “they take [oil] up, and every time, nothing ever happens.”

Russia has said that it sees no obstacle to the output agreement, and last week, OPEC offered Iran a deal to cap production, but not freeze it.

Iran has been a holdout, given that it is still trying to ramp up production to pre-sanction levels.

Preliminary discussions on a potential agreement are taking place in Vienna ahead of the meeting next week. Thus far, those participating have expressed optimism that a deal will be reached.

For its part, the optimism boosted domestic crude oil prices by over 4% on the day.

Away from energy Priceline Group Inc.’s convertibles were unchanged to slightly better, while its underlying stock continued to tick higher.

The 0.35% convertible notes due 2020 ended steady in a 129 to 130 context, while the 0.9% convertible notes due 2021 inched half a point higher to 108.25.

The equity closed at $1,524.18, up $16.83, or 1.12%.

It should be noted that the 0.35% convertibles – a $1 billion issue that priced May 30, 2013 – are convertible at $1,315.10 a share. At the time of pricing, that equaled a 66% conversion premium. As of Monday’s close, the conversion price represents about a 14% discount.

Mentioned in this article:

Chesapeake Energy Corp. NYSE: CHK

Priceline Group Inc. Nasdaq: PCLN

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