Convertibles rise with higher stocks; energy names up; Oasis Petroleum adds a point on swap

By Rebecca Melvin

New York, Sept. 22 – U.S. convertibles saw broad-based gains on Thursday as equity markets rose following the Federal Reserve’s decision to leave rates unchanged, saying the case for a rate increase had strengthened but a go-slow approach remains in place.

In addition to higher common stocks, Treasuries and oil prices were higher.

“Everything was better to buy today; everything ripped with stocks up and there was a lot more trading than yesterday,” a New York-based sellsider said.

The phrase “better to buy” refers to a strong bid in the market.

Oasis Petroleum Inc.’s 2.625% convertibles due 2023, which priced last week, jumped by a point on a dollar-neutral, or swap, basis, ending the session at 101.5 bid, 102 offered versus an underlying share price of $9.81, which was the session’s closing mark on shares.

The Oasis gain coincided with higher oil prices, which rose Thursday after an unexpected drop in U.S. crude inventories reported late Wednesday. The U.S. Energy Information Administration reported a drop of 6.2 million barrels in crude inventories last week, the third straight reduction this month.

Back in convertibles, the gains were broad-based, with market players tending to buy paper that had been lagging recently, a sellsider said.

A lot of the market’s newer issues were in focus, including those of Advanced Micro Devices Inc., Liberty Interactive Corp.’s bonds exchangeable into Charter Communications Inc., DISH Network Corp. and Blackhawk Network Holdings Inc., which priced a little earlier in the summer in July, the sellsider said.

The issues of these companies were seeing buyers and it was primarily outright players who were reaping the gains.

“All of a sudden portfolio managers don’t want to be under invested,” the sellsider said.

In the primary market, there was no new paper launched or priced. The expectation is that issuers will want to take advantage of pricing deals when their common stock price is higher, as they are. But the clock is ticking, and with quiet periods about to kick in before earnings season, it looks like next week provides the only solid window of opportunity to launch and price deals for a while.

Equities gained for a third straight day. The Dow Jones industrial average climbed 98.76 points, or 0.5% to 18,392.46, the S&P 500 stock index gained 14.06 points, or 0.6% to 2,177.18 and the Nasdaq Composite rose 44.34 points, or 0.8%, to 5,339.528.

Oasis Petroleum jumps on swap

Oasis Petroleum’s 2.625% convertibles due 2023 ended the session at 101.5 bid, 102 offered versus an underlying share price of $9.81. That was up compared to earlier in the week when the bond was beginning to languish well below par.

The gain was up about a point on swap, a sellsider said. But the bond, which debuted in the market last week, wasn’t out of the woods yet. “It is still down from issue depending on delta,” the sellsider said.

But after Thursday’s 1-point gain things were looking up for the bond.

“You are up small or down small not given today’s gain,” the sellsider said.

Delta hedge on the name varied from about 75% to 80% to very light.

Right after issue last week there was a lot of selling in the bond related to its perceived credit worthiness.

If market players “start getting constructive on the credit, they will start to buy it,” the sellsider said of Oasis.

AMD moves higher

AMD’s 2.125% convertible due 2026 traded up to 103.75, which was up about a point on the day on an outright basis, according to Trace data. Shares of the Sunnyvale, Calif.-based chip maker rose more than 1% to $6.36.

AMD priced $700 million of the 10-year convertible senior notes at the beginning of this month.

There were buyers of the issue on Thursday not because of any news related to the issuer, but because it is considered a bellwether for the market. Market players know the name and it is a large and liquid issue.

Mentioned in this article:

Advanced Micro Devices Inc. NYSE: AMD

Blackhawk Network Holdings Inc. Nasdaq: HAWK

Charter Communications Inc. Nasdaq: CHTR

DISH Network Corp. Nasdaq: DISH

Liberty Interactive Corp. Nasdaq: QVCA

Oasis Petroleum Inc. NYSE: OAS

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