Transocean convertibles active amid rise in oil prices; Zendesk, Jazz Pharma expand

By Abigail W. Adams

Portland, Me., April 11 – The secondary market in the convertibles space was quiet but firm on Wednesday with no new paper entering the space thus far this week.

While new issuances have outpaced last year’s by more than 6% year to date, the secondary market is in a window of low new deal volume.

With new deals pricing rich and with low coupons, existing issuances should outperform the newer paper, a market source said. The shortage of new paper was pointed to as a possible cause for the firming of the market.

However, trading volume remained light on Wednesday.

The market was “deadly quiet” early in the session with only $43 million on the tape, a market source said. There was $293 million on the tape by late afternoon with Transocean Inc.’s 0.5% convertible notes due 2023 the major volume mover of the day.

Transocean’s convertible notes were up on an outright basis amid the rise in oil prices, which reached their highest levels since December 2014 on Wednesday.

The convertible notes of energy sector names such as Weatherford International Ltd., Ensco Jersey Financial Ltd. and Oasis Petroleum Inc. were also on the rise.

Oil States International Inc.’s 1.5% convertible notes due 2023 gained more than 4 points on an outright basis to trade above par for the first time since early February.

Zendesk Inc.’s recently priced 0.25% convertible notes due 2023 were up about 0.25 point dollar neutral on Wednesday. The notes were once again trading above par on an outright basis after dropping below par on Monday.

Jazz Pharmaceuticals’ 1.875% convertible notes due 2021 and 1.5% convertible notes due 2024 were also expanded on Wednesday with health care paper seeing good bids, a market source said.

Transocean in focus

Transocean’s 0.5% convertible notes due 2023 remained the major volume mover on Wednesday after an active day of trading on Tuesday.

The notes accounted for $13 million of the $43 million in trades on the tape early in the session, a market source said.

More than $30 million bonds traded by late afternoon.

Transocean’s 0.5% notes continued to see gains on an outright basis with the notes seen trading between 122 and 123, about a 4-point increase from Tuesday’s closing trade of 119.

Transocean stock was again on the rise during Wednesday’s session, closing the day at $11.18, an increase of 6.37%. Transocean’s stock also saw a 6% increase on Tuesday.

The 0.5% convertible notes were issued as part of an exchange agreement in Transocean’s acquisition of Songa Offshore SE, which was completed on March 30.

With the acquisition complete, the Switzerland-based offshore drilling contractor has improved its fleet and its ability to capitalize on an improved macro environment for the energy sector.

“People are moving into the sector with the pricing of crude,” a market source said.

The barrel price of West Texas Intermediate crude oil for May 2018 delivery was again up on Wednesday.

The price was $66.74 on Wednesday, up $1.23 or 1.88% from Tuesday. The price of crude oil reached its highest level on Wednesday since December 2014, Bloomberg reported.

Energy sector up

Several convertible notes in the energy sector were also up on Wednesday, following the upswing in oil.

Weatherford’s 5.875% notes due 2021 were up about 1.5 points outright to trade at around 91.5 with a yield just south of 9%.

The Houston-based oil and natural gas service company’s stock closed Wednesday at $2.53, an increase of 1.61%.

Ensco’s 3% convertible notes due 2024 were up about 2 points outright to trade at 84.375 with a yield of 6.265%. The London-based offshore drilling contractor’s stock closed Wednesday at $5.21, an increase of 6.33%.

Oasis Petroleum’s 2.625% convertible notes due 2023 were up more than 3 points to trade just south of 106. Oasis stock closed Wednesday at $8.67, an increase of 3.83%.

For the first time since early February, Oil States’ 1.5% convertible notes due 2023 broke par in scattered trades on Wednesday.

The notes climbed more than 4 points outright to trade as high as 102 after spending most of March and early April in the mid-90s.

Oil States’ stock closed Wednesday at $30.25, an increase of 5.22%.

Zendesk expands

Zendesk’s 0.25% convertible notes due 2023 were seen expanded on Wednesday by 0.25 point. After dropping below par on Monday, the notes climbed 1 to 2 points outright and were seen trading in a range of 101 to 102.

Zendesk stock closed Wednesday at $47.33, an increase of 1.65%.

Jazz expands

Jazz Pharmaceuticals’ convertible notes were also expanding 0.25 point dollar neutral on Wednesday, a market source said.

Jazz’s 1.5% convertible notes due 2024 were seen wrapped around 99.75 in trading. The 1.875% convertible notes due 2021 were seen at 105.25 bid, 105.75 offered.

While both were expanded, the 1.5% convertible notes were stronger dollar neutral and were up 0.25 to 0.5 point over the past two days, the source said.

Jazz Pharmaceuticals stock closed Wednesday at $154.97, a decrease of 0.62%.

Convertibles in the health care space have seen better bids over the past 24 hours, the source said.

Mentioned in this article:

Ensco Jersey Financial Ltd. NYSE: ESV

Jazz Pharmaceuticals Nasdaq: JAZZ

Oasis Petroleum Inc. NYSE: OAS

Oil States International Inc. NYSE: OIS

Transocean Inc. NYSE: RIG

Weatherford International Ltd. NYSE: WFT

Zendesk Inc. NYSE: ZEN

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