Convertibles weak as oil roils markets; Chesapeake down again; Harmonic looks cheap

By Rebecca Melvin

New York, Dec. 8 – U.S. convertibles remained weak on Tuesday, with prices on many names drifting lower on low volume as volatility continued to rock the crude-oil and other commodity markets, dragging equities lower.

“Everybody was looking at their energy loss, and bids were drifting lower, but no one was ready to buy,” a New York-based trader said of the convertibles market.

For the most part, paper was offered just above Monday’s bid levels, and bids eased about 0.25 point to 0.5 point, he said.

Chesapeake Energy Corp. was weaker again, although not as actively traded as on Monday. The Chesapeake convertible preferreds slipped into the teens from the 20s as speculation about potential debt restructuring plans began to grow.

Whiting Petroleum Corp.’s convertible bonds also extended losses after a jolt lower on Monday, and Cheniere Energy Inc. began to trade down even as shares of the LNG company traded better.

In the primary market, Harmonic Inc.’s planned offering of $125 million of five-year convertible senior notes was seen as cheap based on valuation, a market source said early Tuesday, but he raised some red flags that could spell some rough sledding for the deal.

In the broader markets, equities were down after a jumpy open in which the Dow Jones industrial average dropped more than 200 points right off the bat. The index closed down 162.51 points, or 0.9%.

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