New, upsized Oasis Petroleum convertibles drop below par; new AMD bonds regain footing

By Rebecca Melvin

New York, Sept. 14 – Oasis Petroleum Inc.’s newly priced 2.625% convertibles due 2023 traded down upon release for secondary market dealings on Wednesday after the Houston-based oil and gas company priced an upsized $275 million of the senior notes at a coupon that was fixed at launch and the cheap end of premium talk.

The registered convertible was initially expected to be $250 million in size. Its greenshoe was downsized to $25 million from an initially talked $37.5 million.

The new bond was quoted at 98.125 bid, 98.875 offered at late morning versus a price for the underlying stock at $9.24.

A second source put the bonds are little better at 98.625 bid, 99.625 offered versus a stock price of $9.25.

On a swap basis, they were going to be trading on a 68% delta, the first source said, and therefore the bond was seen lower on a swap basis. But the second source put the delta higher in the mid-70% range, and at that level the bond did better on swap.

The Oasis common shares slumped immediately out of the gate on Wednesday after the overnight deal was priced around 9 a.m. ET. They closed down 56 cents, or 5.8%, at $9.14.

Oasis Petroleum’s securities are tied to the price of oil, and with the front month of West Texas intermediate oil lower, it weighed on the stock and the bonds, market players said.

As of late morning, U.S. crude oil for October delivery was at $44.02 per barrel, which was down 88 cents, or 2% on the day.

Aside from the new deal, three issues stabilized on Wednesday in active trade after weakening on a dollar-neutral, or hedged, basis on Tuesday.

Advanced Micro Devices Inc.’s 2.125% convertibles regained par after several days of losses took the paper down to 97 since its debut in the market on Friday. The 2-point outright gain on Wednesday occurred in tandem with a five-percentage point gain in the underlying shares of the Sunnyvale, Calif.-based chipmaker. The bond traded last at 100.75 against shares that were about $6.04.

Also trading on Wednesday was DISH Network Corp.’s $3 billion convertibles deal, which traded little changed against a gain in the underlying shares. The DISH 3.375% convertibles changed hands at 102.3 when shares were up about 2% at $50.70.

Ctrip.com International Ltd.’s $900 million of 1.25% convertibles due 2022 also traded little changed at about 98, compared to shares of the Shanghai-based internet travel company, which closed down 25 cents, or 0.6%, at $42.83.

Elsewhere, Synergy Pharmaceuticals Inc. was in focus as shares of the New York-based biopharmaceutical company surged 9% to $5.30. The Synergy 7.5% convertibles due November 2019 were indicated higher at 183.25 from 169.34.

Oasis slumps on its debut

Oasis Petroleum’s 2.625% convertibles were quoted down to 98.125 bid, 98.875 offered at late morning versus a price for the underlying stock at $9.24.

The shares traded as low at $9.04 and as high as $9.50 on Wednesday, but all of the pricing was below the $9.70 price for the shares at Tuesday’s market close.

Weaker oil prices were said to be behind the lower pricing of the convertible and its underlying shares.

The International Energy Agency dragged market prices lower after its monthly report released Tuesday said that the slowdown in global oil demand growth has accelerated in the third quarter of 2016, sinking to 800,000 barrels a day, which is 1.5 million barrels a day lower than the third quarter of 2015.

“Oasis has a high beta to oil and is really a levered play to oil,” a market source said, tying the convertibles price to the move in oil.

One market source said that when the paper stopped trading on an outright basis at late morning, and began to trade on swap, the delta was at 68% delta.

“There were a lot of sellers especially with oil off and the stock going down. It isn’t doing great,” a trader said of the new deal.

The second source commented that the Oasis deal is really a Bakken oil field play, and it’s an E&P company that is well known in the credit market, if not the convertibles market.

Proceeds of the deal were going to do repurchases of four of the company’s straight bond issues and tenders were undertaken concurrently with pricing of the convertible bond.

“There is a slight prioritizing of the 2019 bond, or nearest maturity, to best extend the maturity profile,” a market source said.

In addition to the lower oil prices of Wednesday, there is turbulence in markets generally including global markets because of central bank volatility, the source said. But the Oasis deal was priced on an overnight basis to somewhat insulate the issuer from that volatility.

On a mid-70% delta, the bonds were seen at the equivalent of 101.125 bid, the source said.

Other recent new energy deals include SM Energy Co.’s $150 million convertible deal that came last month with a 1.5% coupon, 35% premium and five-year term, as well as a concurrent stock offering, and that of PDC Energy Inc., which priced $200 million of 1.125% five-year convertibles at a 35% premium, also with a concurrent stock deal, last week.

SM Energy’s 1.5% convertibles due 2021 traded on Wednesday at 104.5.

The approaches of those deals were much different from this one, a source said. Oasis Petroleum priced the seven-year paper ahead of the market open to yield 2.625% with an initial conversion premium of 35%. The registered deal was initially talked at $250 million in size. The deal’s greenshoe was downsized to $25 million from an initially talked $37.5 million.

Pricing came at the fixed 2.625% coupon and at the cheap end of 35% to 37.5% premium talk.

Joint bookrunning managers were RBC Capital Markets LLC, Citigroup Global markets Inc., Deutsche Bank Securities Inc., Goldman Sachs & Co., J.P. Morgan Securities LLC and Wells Fargo Securities LLC.

The bonds are non-callable until Sept. 15, 2020 and then are provisionally callable if shares exceed 130% of the conversion price for 20 out of 30 consecutive trading days.

They have contingent conversion and net share settlement, as well as takeover protection via a make-whole premium upon conversion.

Oasis Petroleum is a Houston-based independent oil and gas exploration and production company.

Mentioned in this article:

Advanced Micro Devices Inc. NYSE: AMD

Ctrip.com International Ltd. Nasdaq: CTRP

DISH Network Corp. Nasdaq: DISH

Oasis Petroleum Inc. NYSE: OAS

PDC Energy Inc. Nasdaq: PDCE

SM Energy Co. NYSE: SM

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