Akamai convertibles eyed post earnings; Weatherford, Chesapeake Energy under pressure

By Abigail W. Adams

Portland, Me., Oct. 30 – Convertibles trading saw an uptick in activity on Tuesday with equity markets firming and the tone improved.

Names were “on the move, but we’re not seeing the wholesale dumping we were,” a market source said.

Akamai Technologies Inc. helped buoy the tech sector with stock soaring after a third-quarter earnings beat.

The cloud service provider’s 0.125% convertible notes due 2025 were improved on a dollar-neutral, or hedged, basis with the 0% convertible notes due 2019 largely unchanged.

However, Tuesday was a dark day for the energy sector.

Weatherford International Ltd.’s 5.875% convertible notes due 2021 continued “to get the snot beat out of it,” a market source said.

The notes were down another 5 points dollar-neutral as equity continued to tank.

Chesapeake Energy Corp.’s 5.5% convertible notes due 2026 dropped outright as stock tanked in response the company’s acquisition of WildHorse Resource Development Corp.

However, the notes were unchanged on a dollar-neutral basis.

With earnings reports continuing to pour in and markets choppy, sources were pessimistic about the prospects for new deal activity this week.

While there are deals in the pipeline, potential issuers appeared to be holding back until market conditions improved.

Akamai in focus

Akamai’s convertible notes were in focus on Tuesday as stock soared after a large earnings beat.

The 0.125% convertible notes due 2025 were up 4 points outright to 95.5 early in the session, a market source said.

They were trading on a 97 handle by the mid-afternoon. The notes were expanding 1 point dollar-neutral, a market source said.

More than $10 million of the bonds changed hands less than one hour into Tuesday’s session, although activity in the name tempered into the afternoon, sources said.

Akamai’s stock closed Tuesday at $72.55, an increase of 16.92%.

Akamai’s 0% convertible notes due Feb. 15, 2019 were also active, although the notes were unchanged to only slightly improved, sources said.

The notes were up about 0.125 to 0.25 point outright to trade at 99.25, a market source said. The 0% notes do not trade on hedge, the source said.

Akamai reported non-GAAP earnings per share of 94 cents in the third-quarter versus analyst expectations of 83 cents.

Akamai also beat top line estimates with revenue of $670 million versus analyst expectations of $663 million.

The earnings beat comes after IBM announced its acquisition of Red Hat Inc. in an effort to position itself as an industry leader in cloud computing services.

Red Hat’s 0.25% convertible notes remained active on Tuesday after dominating trading activity on Monday.

The notes were largely wrapped around 230 with stock flat. Red Hat stock closed Tuesday at $170.00, an increase of 0.22%.

The notes jumped more than 70 points outright on Monday with stock closing the day up 45.38% after the acquisition announcement.

Analysts have speculated Akamai is also a potential acquisition target.

Weatherford gets beaten

Weatherford’s 5.875% convertible notes due 2021 continued their downfall in high-volume activity in the secondary space.

Weatherford was the “poster child” for an energy sector that was under pressure on Tuesday, a market source said.

The 5.875% notes opened the day around 80 but traded as low as 73 by the mid-afternoon.

They dropped another 5 points on a dollar-neutral basis, marking a 10-point dollar-neutral decline since the start of the week, a source said.

The 5.875% notes trade with a 100% delta because the credit is so shaky, the source said.

The notes were trading with a 16.92% yield to maturity early in the session, which gained to a 19% yield by the mid-afternoon, sources said.

Weatherford stock closed Tuesday at $1.29, a decrease of 16.23%.

Weatherford’s bonds and equity have tanked since the oilfield services provider reported third-quarter earnings.

While Weatherford’s bottom-line results beat expectations, it missed on revenue.

Weatherford reported a non-GAAP loss per share of 10 cents for the quarter, versus analyst expectations of a loss per share of 12 cents.

However, Weatherford reported revenue of $1.44 billion, which missed analyst expectations of revenue of $1.52 billion.

The issue is with cash flow, a market source said. “People are wondering if they’re going to be able to pay their coupons,” the source said.

Chesapeake down outright

Chesapeake Energy’s 5.5% convertible notes due 2026 were also in focus with the notes losing ground on an outright basis as stock tanked after the company announced its acquisition of WildHorse Resource Development.

The notes dropped to 91.5 with more than $8 million on the tape early in the session. They were seen changing hands at 91.75 later in the afternoon.

However, the notes were unchanged on a dollar-neutral basis, a source said.

The 5.5% convertible notes were trading at 97 last week, according to Trace data.

Chesapeake Energy stock closed Tuesday at $3.26, a decrease of 12.36%.

While Chesapeake reported an earnings beat prior to the market open, the stock fell in response to its announced acquisition of WildHorse in a cash and stock transaction valued at $4 billion.

Chesapeake reported earnings of 19 cents for the third-quarter versus analyst expectations of earnings per share of 12 cents.

Chesapeake also beat on the top line with revenue of $2.4 billion versus analyst expectations of $2.3 billion.

Mentioned in this article:

Akamai Technologies Inc. Nasdaq: AKAM

Chesapeake Energy Corp. NYSE: CHK

Red Hat Inc. NYSE: RHT

Weatherford International Ltd. NYSE: WFT

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