Convertibles resilient despite another stock slide; old SunEdison notes, shares tank

By Rebecca Melvin

New York, Jan. 7 – Convertibles remained resilient on Thursday despite a continuing slide in equities – leaving the S&P 500 stock index down 4.9% over the first four trading days of the year – as investors fear the implications of slowing China growth and actions that government is taking to limit damage to its financial markets, including currency devaluations and suspending stock market trading.

U.S. stocks ended near their lows for the day, in contrast to late rallies that pared swoons on Monday and Wednesday.

The convertibles market is going “surprisingly well. Things are definitely holding up relative to the equity market. Credit is very stable,” a New York-based trader said.

But SunEdison Inc. was hammered after the solar technology company said that it is raising $725 million of secured terms loans and reducing $740 million of convertible debt via an exchange agreement involving a new convertible note and stock.

SunEdison’s 5% convertibles due 2018, which is the new $225 million convertible the company has agreed to issue in exchange for parts of its older convertible issues, saw an early market at 90 bid, 92 offered but was not known to have traded.

The existing SunEdison convertibles were pretty quiet initially as market players were “digesting the news,” a market source said. But prices dropped sharply on trades that were made.

SunEdison’s 2.375% convertibles due 2022 traded early in the day at 38.8 when shares were down about 21%, but they were indicated down at 36 at the close, from 41 previously, according to market sources.

SunEdison’s 0.25% convertibles due 2020 traded at about 40 early in the day and were seen at 36.7 at the close compared to 41.2 previously.

Elsewhere, Cobalt International Energy Inc. was trading weakly again. The Cobalt 2.625% convertibles slipped about another 0.5 point to 54.25 with shares down 12 cents, or 2.6%, at $4.59. Shares of the Houston-based oil and gas exploration and production company fell much further, however, ending the day at $4.33, which was down 8%.

West Texas Intermediate crude oil for February delivery was down another 71 cents, or 2.1%, to $33.26 per barrel, after tanking $1.91, or 5%, to $34.06 per barrel on the New York Mercantile Exchange on Wednesday.

Broad-based selling of equities early Thursday marked the beginning of yet another session this week amid festering concerns about China. Ahead of the U.S. market open, newly implemented circuit breakers stopped trading on the Shanghai Stock Exchange for the second time this week.

Iconix Brand Group Inc.’s very short-dated 2.5% convertibles due June 1, 2016 lagged again and were seen in the 82.5 bid, 83 offered range, a New York-based trader said. Shares of the New-York-based brand management company were initially around $6.41, which was little changed on the day, but they ultimately fell 51 cents, or 8%, to $5.90,

Existing SunEdisons roiled

SunEdison’s existing complex of seven convertibles all paled and shrank back after the company announced that it has agreed to issue new notes and stock in exchange for some or all of those issues, including its 2% convertibles due 2018, which looked to have crunched more than 10 points to 45 from 56; its SunEdison 0.25% convertible senior notes due 2020, its 2.75% convertibles due 2021, its 2.25% convertibles due 2022, its 2.625% convertibles due 2023, its 3.375% convertibles due 2025 and its 6.75% perpetual convertible preferreds, which priced most recently in August.

“All [the issues] had some exchange, but it looks like it was a small group of holders that participated in the deal in separately negotiated transactions,” a market source said.

“The company needed the money and it was good for the guys that participated in the exchange, but not so good for the holders that didn’t participate,” the source said.

“It cleans up some of their upcoming maturities,” the source said.

Trading was light, however, as holders hoped that the company might say that it is going to add to the exchange.

SunEdison’s shares tanked on the exchange news and were down 21% at $4.38 around midday. But shares continued to slide, hitting a low of $3.10 shortly after 3 p.m. ET, when trading was halted on a circuit breaker.

Part of the exchange deal involves about 28 million shares of common stock in exchange for an aggregate of $44.3 million principal amount of the 2018 notes, $71 million principal amount of the 2020 notes, $10.5 million principal amount of the 2021 notes, $37 million principal amount of the 2022 notes, $43 million principal amount of the 2023 notes and $38.5 million principal amount of the 2025 notes; and 11.8 million shares of common stock in exchange for an aggregate of $158.3 million, or 158,327 shares, of the preferreds.

Mentioned in this article:

Cobalt International Energy Corp. NYSE: CIE

Iconix Brand Group Inc. Nasdaq: ICON

SunEdison Inc. Nasdaq: SUNE

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