SunEdison improves; Iconix up; Whiting Petroleum flat; Hercules Offshore files Chapter 11

By Rebecca Melvin

New York, Aug. 13 – SunEdison Inc. remained a theme in the convertibles market on Thursday, and those bonds were “a little bit better across the board” on both an outright and hedged basis, a New York-based trader said.

Early in the session, the SunEdison 3.375% convertibles due 2025 were seen around 72 when the underlying shares were up nearly 10% at $15.56. That was up from 69 late Wednesday.

But shares of the St. Peters, Mo.-based solar technology company pared their gains, ending the session up 5% at $14.99, and the bonds were a little lower compared to the early levels, a trader said.

On Wednesday, the SunEdison bonds were significantly weaker, with the newest issues down in excess of 2 points on the day.

Iconix Brand Group Inc.’s 2.5% convertibles due 2016 were higher, quoted at 94 bid, 95 offered with the shares up about 2% at $13.56. The bonds had dropped last week to 87 after news that the New York-based brand management company’s founder and chief executive officer, Neil Cole, is stepping down.

Energy convertibles were not overly active on Thursday despite weaker crude oil prices that slumped to 6.5-year lows.

The Whiting Petroleum Corp. convertibles were trading fairly actively and were unchanged on a swap basis with shares down 4% at $19.19.

Hercules Offshore Inc., a Houston-based offshore oil driller, made a pre-packaged Chapter 11 bankruptcy filing in the U.S. Bankruptcy Court for the District of Delaware, which was expected to conclude in 45 to 60 days.

Elsewhere, Tesla Motors Inc.’s convertibles added on Thursday after the Palo Alto, Calif.-based electric car maker said it is offering about $500 million of common stock.

Insulet Corp.’s convertibles were down with the common shares of the Bedford, Mass.-based medical device maker after the company reported a second-quarter loss that missed estimates.

The Insulet 2% convertible fell to 97.5 from 101, according to a market source, compared to shares that lost $2.89, or 8.5%, to $31.18.

New issue market

There were no new deals launched or priced in the convertibles market on Thursday, which was not surprising given that the market quiets during the summer months, particularly from mid-August through Labor Day. A New York-based origination source said, “I don’t think anything is going to happen until after Labor Day.”

After Labor Day, however, the source suspected that a healthy pace of issuance would resume, with deals especially in the health care and technology sectors.

For the year to date, about 50% of new convertible issuance has been in those two sectors, excluding large acquisition-related deals including mandatory issuance, the source said.

A pace of about two deals a week should persist through year-end, depending on how markets react to any rate change and the situation in China, the source said.

The Federal Open Market Committee is set to meet in September and may raise the Federal Funds rate from its near 0% level.

“People see some sort of rate rise, but investors have enough gap right now, and deals are pricing well if the name has demand from the equity side,” the origination source said.

For the year so far, new convertible issuance has fallen behind last year’s pace after starting out the year at the same pace or slightly higher.

“Over the last month or two it has slowed down, but going forward, it should pick up. A lot is going to depend on how the market acts post FOMC and with China,” the source said.

“We are definitely not going back to the pace of 2011 and 2012. It will be similar to the end of last year if equities do well,” he said.

SunEdison improves

SunEdison’s 3.375% convertibles were seen trading around 72 versus an underlying stock price of about $15.60. That was following a 2-point slide on Wednesday.

“They are trading better,’ a New York-based trader said.

Partly it was due to the fact that the stock was up on news of a new deal for the company and partly because “sellers have cleaned up what they needed to do.”

Late Wednesday, SunEdison announced that it has signed a definitive agreement with Dominion power company to build as a joint venture a 420-megawatt solar project in Utah.

The project is contracted with long-term power purchase agreements for 20 years with Pacificorp and is currently under construction, according to a SunEdison press release.

SunEdison dominated Wednesday’s convertibles trading session.

Mentioned in this article:

Hercules Offshore Inc. Nasdaq: HERO

Iconix Brand Group Inc. Nasdaq; ICON

Insulet Corp. Nasdaq: PODD

SunEdison Inc. Nasdaq: SUNE

Tesla Motors Inc. Nasdaq: TSLA

Whiting Petroleum Corp. NYSE: WLL

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