SM Energy trades in line after lifting bank loan; Cheniere adds amid share sale; Intel steady

By Rebecca Melvin

New York, June 1 - The first trading day of June was marked by a general reluctance of convertibles players to bid as the broader markets, particularly equities, took a drubbing related to weak economic data released early in the day for May.

"As usual on days like this, things seem quiet," a New York-based trader said Wednesday.

The trader said that he was seeing a number of dealer buys with no corresponding sell orders, indicating that convertibles investors were using dealers as a holding ground for paper, he believes.

"Seeing a lot of what I call 'single-B drive-by jobs' on Trace," the trader said; he referred to the dealers' balance sheets as "dumping grounds."

Meanwhile the pricing of many issues in the generally fully-valued convertibles market was in line on a hedged basis.

SM Energy Co. convertibles traded in line after the Denver-based oil and gas company said it amended its five-year credit facility, raising it by 30% to $1.3 billion and also said it was planning non-core asset sales for $44 million.

Cheniere Energy Ltd. convertibles were up more than 2 points and traded actively before retreating some after getting ahead of themselves. They were reacting to news that the Houston based energy company priced an upsized secondary offering of 11 million shares at $10.35 a share Originally the offering was expected to be 8.7 million shares in size.

Some tech names were in focus, with Intel Corp. trading pretty actively and maintaining its premium of about 26%, a New York-based sellside desk analyst said, as shares of the Santa Clara, Calif.-based chip giant slipped 2.3%

Another tech bellwether, Microsoft Corp., saw its 0% convertibles due 2013 in trade Wednesday at 102.25 versus a share price of $24.55.

Overall, market players watched a strong down day in the equities market. One convertibles trader called it "decent," and said "let's see if it actually stays down here."

The Dow Jones Industrial Average dropped 280 points, or 2.2%, at 12,290 and the S&P 500 stock index skidded 31 points, or 2.3%, to 1,315, and the Nasdaq Stock Market fell 66 points, or 2.3%, to 2,769.

The latest batch of economic data was to blame, ostensibly. The ADP employment report, published by Automatic data Processing Inc. and Macroeconomic Advisors, showed that U.S. private-sector jobs rose by just 38,000 in May, which was drastically lower than the 190,000 additional jobs that economists had expected.

Also Wednesday, the ISM manufacturing purchasing manager's index fell to 53.5 in May from 60.4 in April and below the 57 reading that economists had expected for May PMI.

SM trades in line

SM Energy's 3.5% convertibles due 2027 traded at 134.24 versus a share price of $69.35 and also at 133.72 versus a share price of $69.00.

Shares of the Denver-based independent oil and natural gas company jumped $1.25, or nearly 2%, to $67.74.

"The stock popped on I guess the amended credit pact. Stock went over $70, is back down to $67.61," a New York-based sellside trader said.

The bonds, which trade on about an 85% delta, have a yield to put of 6.6%, which is about eight points of premium, a New York-based sellside desk analyst said. They are putable or callable in April.

SM Energy said it has entered into an amended five-year senior secured revolving credit facility, with an increase of the company's borrowing base to $1.3 billion from $1.0 billion.

The commitment amount has also been increased to $1.0 billion, up from $678 million. The company's previous credit facility was scheduled to mature in July 2012. As of May 31, 2011, the company did not have any borrowings drawn against its credit facility.

SM also announced that it was beginning negotiations concerning divestiture and development of its Eagle Ford shale position. The company received multiple bids during its marketing process and is currently negotiating a transaction or combination of transactions.

In addition, the company has entered into an agreement to sell non-core assets in the Constitution Field for aggregate proceeds of about $44 million.

First quarter production associated with these properties is about 6 MMCFE/d. The Constitution Field transaction represents the company's entire position in this legacy field in southeastern Texas.

Cheniere trades up to 94

Cheniere's 2.25% convertibles due 2012 traded up to 94, which was higher by more than 2.5 points on the day, while the underlying stock of the company fell 92 cents, or 8%, to $10.79.

They "got a little ahead of themselves," a New York-based trader said.

The company priced Wednesday 11 million shares of common stock at $10.35. Proceeds are earmarked for general corporate purposes.

Credit Suisse Securities (USA) LLC was bookrunner for the offering that came under a shelf registration.

"The company is doing the right thing by taking advantage of a dubious spike in its stock to shore up the balance sheet, but it's not out of the woods just yet," the trader said.

There has been a lot of volatility in the shares all year amid news stories related to such problems as debt, natural gas demand and prices and approval to export natural gas from Louisiana, which was the story last week that boosted shares.

Shares started rallying in mid-October from below $3 per share.

Mentioned in this article:

Cheniere Energy Inc. NYSE: LNG

Intel Corp. Nasdaq: INTC

Microsoft Corp. Nasdaq: MSFT

SM Energy Co. NYSE: SM

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