Morning Commentary: Convertible bond returns see sharp decline; Weatherford drops below par

By Abigail W. Adams

Portland, Me., Feb. 5 – The convertibles market started the year off strong with outright players seeing returns of 3.94% in January with underlying equity up 6.28%, according to the Bloomberg Barclays Convertibles Bond index. But the pullback last week “was pretty massive,” a market source said.

Returns for the long-only market dropped to 1.94% last week, as the returns on equity dropped to 3.94%.

As the market experienced a long-predicted pullback, $1.94 billion in new convertible deals priced.

While some deals, such as Alder BioPharmaceuticals Inc., were trading below par right out of the gate, others such as Western Digital Corp. held their own.

Meanwhile, trading activity was quiet early in Monday’s session.

Alder’s 2.5% convertible notes due 2025 continued to trade in the 97 to 98 range. Alder stock was up to $14.03, an increase of 2% in early trading on Monday.

Western Digital 1.5% notes due 2024 lost some strength on an outright basis with scattered trades in the 101 to 101.7 range, according to Trace data. Western Digital stock was down to $85.10, a decrease of 0.18% early in Monday’s session.

Weatherford International Ltd.’s 5.875% convertible notes due 2021 continued to trade down early in Monday’s session. After dropping about 5 points on an outright basis on Friday, the 5.875% notes traded below par at 99.687 on Monday.

Weatherford stock was down 5.43% to $3.31 early Monday.

Weatherford reported its fourth-quarter earnings on Friday prior to the market open. Weatherford reported net losses of 33 cents per diluted share for the fourth quarter and an adjusted operating loss of $84 million.

Net losses in the third quarter of 2017 were 22 cents per diluted share and operating losses of $8 million. The losses were attributed to reduced activity in Venezuela and a change in accounting procedures for revenue, according to a company news release.

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