Higher-grade convertibles in focus amid better outright sellers; Newmont Mining holds in

By Rebecca Melvin

New York, Jan. 19 – Higher-grade issues were in focus in the convertibles space as equity markets swung around, ending the session off their lows and at about the unchanged mark on the first day of the trading week on Tuesday.

U.S. financial markets were closed on Monday in observance of the Martin Luther King Jr. holiday.

Traders pointed to activity in Priceline Group Inc., Ares Capital Corp., Lam Research Corp. and Intel Corp. as high-grade bond spreads were a few basis points tighter and equities a little higher in the early going. But crude oil prices were lower.

There was not much trading, but it seemed that most investment-grade names were trading in a flight-to-safety trade, a New York-based trader said.

Twitter Inc., Microchip Technology Inc. and Newmont Mining Corp. were also mentioned as active.

A second New York-based trader said there was outright money being taken off the table as funds are anticipating redemptions given current performance.

Microchip’s 1.625% convertibles due 2025 traded up a point to 91.8, according to Trace data.

Newmont’s 1.625% convertibles traded in size on Tuesday at 98.75, compared to being offered on Friday at 98.25, sources said.

Newmont is a “decent cash surrogate and the bonds held up on hedge as the stock was down a lot,” the trader said.

Shares of the Greenwood Village, Colo.-based gold and copper miner fell $1.39, or 8%, to $16.31 on Tuesday after trading higher on Friday with higher gold prices.

“I think the last equity sell-off has people saying, ‘we can’t take it anymore.’ And there were better outright sellers at funds,” the trader said.

WPX Energy Inc.’s mandatory convertibles traded down, but not by as much as the WPX common shares, which were downgraded to equal weight from overweight by CapitalOne. The mandatories of the Tulsa, Okla.-based oil and gas exploration and production company fell $2.35, or 9.4%, to $22.65. But the WPX common shares slid 61 cents, or 14%, to $3.82.

But for the most part on Tuesday, energy names were eerily quiet, as the ongoing slide in crude oil prices and energy stock and bond prices sapped liquidity.

West Texas Intermediate crude oil for February delivery sunk another $1.14, or 3.9%, to $28.28 per barrel on Tuesday. It is down by about 20% since the beginning of the year.

“At this point liquidity in high-yield energy names is nonexistent,” a market source said. He said that even if there was a rebound in oil prices now, it is too late to avert many bankruptcies.

“Even if they recover, it doesn’t matter. The bank facilities are reevaluated in the first quarter,” he said, and that points to bankruptcies in the March to April time frame.

He said that the specter of one bankruptcy after another was fueling weakness in the broader markets. But a second convertibles source said that his firm expects the high-yield market will be able to avert a number of bankruptcies by doing debt-to-equity swap deals instead.

Mentioned in this article:

Ares Capital Corp. Nasdaq: ARCC

Intel Corp. Nasdaq: INTC

Lam Research Corp. Nasdaq: LRCX

Microchip Technology Inc. Nasdaq: MCHP

Newmont Mining Corp. NYSE: NEM

Priceline Group Inc. Nasdaq: PCLN

Twitter Inc. Nasdaq: TWTR

WPX Energy Inc. NYSE: WPX

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.