Newpark brings downsized deal with upsized coupon; Evolent Health trades up; energy pushes higher

By Stephanie N. Rotondo

Seattle, Nov. 30 – It was “a good day in convertibles,” a trader said Wednesday, as two new dollar-denominated issues hit the tape.

Newpark Resources Inc. brought $87.5 million of 4% convertible senior notes due 2021 at par to yield 4% with an initial conversion premium of 42.5%.

The deal was originally slated to be in the amount of $100 million, with price talk at 3.25% to 3.75%.

One New York-based sellside source said the new deal was “trading up a storm,” moving in a range of 102 to 107.875 at mid-morning.

“The stock did better,” the source noted, gaining 70 cents in early dealings. That put the bonds trading at “almost a 100% delta.”

Later in the day, a trader pegged the bonds at 107.75 bid, 108.25 offered.

At another shop, a market source said that while he was not involved in trading the name, “it looks like it did well,” calling the issue up 6 to 7 points outright.

“Obviously there was a better tone for oil, so they came at a good time,” he said of The Woodlands, Texas-based oilfield drilling services provider.

One trader speculated that the deal was downsized due to “tepid demand” for the energy-linked paper. But ahead of pricing, it was probably believed that the deal would come upsized, say around $125 million, the trader said.

Given that, “guys probably overshorted this thing,” the trader said.

Another source said the lower amount, but richer pricing, likely came from “a menu of options” presented to the company. He added that hedge funds are not much fazed by higher premiums, though it could have scared off outright buyers – thus the smaller size.

A trader also noted that in the wake of the new issue, the company’s 4% convertible notes due 2017 were trading at par, as investors sold those bonds back to the underwriter for the company to retire.

“They were swapping for optionality,” he said, as the 2017 paper matures in about 10 months, whereas the new deal doesn’t come due for about five years.

He added that “probably around $80 million” of the old notes were retired.

The initial conversion rate on the new issue is 107.1381 per each $1,000 of notes, equating to a conversion price of $9.33 per share.

Meanwhile, Evolent Health Inc. also brought a deal, a $110 million issue of 2% convertible senior notes due 2021 at par with an initial conversion premium of 27.5%.

That issue was trading in a 104.5 to 105 context at mid-morning, trading up to 106 bid, 106.5 offered toward the end of the day.

The underlying shares, however, were off 5 cents at $18.80.

The debt is convertible into class A common stock at an initial conversion rate of 41.60822 shares per each $1,000 of notes. The initial conversion price is $24.03 per share.

In the euro-denominated market, BE Semiconductor Industries NV priced €125 million of 2.5% senior convertible bonds due Dec. 2, 2023 with an initial conversion premium of 40%.

Price talk was 2.5% to 3%, with an initial conversion premium of 32.5% to 40%.

Morgan Stanley & Co. International plc was the global coordinator and bookrunner.

The initial conversion rate is €43.51 per share, which compared to a share price of €31.31 as of Wednesday’s close.

The company can choose to redeem the issue in whole on Dec. 23, 2020 if the stock price hits a 130% hurdle.

Proceeds will be used to continue the development of next-generation advanced packaging technologies and to further expand the company’s Asian manufacturing operations. Any remaining funds may be used for general corporate purposes, including debt retirement, acquisitions and share buybacks.

OPEC deal boosts energy

As for energy-linked names, they were on the rise – both in the convertible bond market and the equity space – as OPEC inked a deal to cut production for the first time since 2008.

The news resulted in domestic crude prices soaring by over 8%.

In response, Jones Energy Inc.’s 8% series A convertible preferreds jumped about 17 points to $84.20, while its stock improved 21.05% on the day. WPX Energy Inc.’s 6.25% mandatory convertible preferreds due 2018 were likewise better, rising nearly 13 points to trade with a 69 handle.

Like Jones Energy, Oasis Petroleum Inc.’s 2.625% convertible senor notes due 2023 gained about 17 points outright, following a 27.73% gain in the equity.

The bonds finished around 136.

As for energy bellwethers, Chesapeake Energy Corp.’s 5.5% convertible notes due 2026 ticked up 5.5 points to 104.75, as the underlying stock gained nearly 10%.

And, Weatherford International Ltd.’s 5.875% exchangeable senior notes due 2021 put on 7 to 7.5 points for the day, closing at 107 bid, 107.5 offered.

Weatherford’s shares meantime improved over 18%.

Under the terms of the production cut, OPEC will reduce total production by 1.2 million barrels per day, beginning in January.

Nigeria and Libya were exempted from the agreement. Iran was allowed to increase its production to up to about 3.8 million barrels per day.

Saudi Arabia meanwhile took the biggest hit in the deal, having to curb output by about 486,000 barrels per day. Iraq will cut its output by 210,000 barrels per day.

Russia, a non-OPEC member, has also agreed to reduce its record-level production by as much as 300,000 barrels per day.

Mentioned in this article:

BE Semiconductor Industries Inc. Amsterdam: BESI

Chesapeake Energy Corp. NYSE: CHK

Evolent Health Inc. NYSE: EVH

Jones Energy Inc. NYSE: JONE

Newpark Resources Inc. NYSE: NR

Oasis Petroleum Inc. NYSE: OAS

Weatherford International Ltd. NYSE: WFT

© 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.