Convertibles trade heavy with broader markets; oil names lower; UTi paper under pressure

By Stephanie N. Rotondo

Phoenix, Sept. 28 – The convertible debt market was trending lower in early Monday trading, following the broader markets downward as global economic concerns grew.

As for domestic worries, the market continued to ponder when – or if – the Federal Reserve would raise interest rates, as the central bank chose to hold rates steady earlier in the month.

On top of that, a government shutdown could be looming as congressional leaders fight over the next fiscal year’s budget.

In the world of convertible preferred stock, oil and gas names were struggling as oil prices remained in flux. Domestic crude prices were off 1.58% at mid-morning, ultimately finishing down 2.47%.

Given the volatile oil market, many companies have been struggling to stay afloat. As such, several have gone into preservation mode.

SandRidge Energy Inc. joined those ranks Monday as the Oklahoma City-based company said it was suspending its dividend on the 7% convertible perpetual preferreds (OTCBB: SDRXN).

“Preservation of liquidity and prudent capital allocation are key issues for SandRidge in the current environment,” James Bennett, the company’s president and chief executive officer, said in a press release.

Those preferreds fell $3.65, or 44.79%, to $4.50. The common stock declined 3 cents to 27 cents.

“The equity got so low it didn’t make sense for them” to keep paying the dividend, a trader said.

New Source Energy Partners LP meantime announced that it was skipping its Oct. 15 dividend payment on its 11% series A cumulative convertible preferred units (NYSE: NSLPPA). The units declined $4.20, or 70.69%, to $1.60.

The common equity closed unchanged at 16 cents.

New Source – also based in Oklahoma City – said the decision was due to a possible borrowing base deficit under a revolving credit facility. The company is working with lenders to deal with the issue and restart its dividend payments.

Another Oklahoma City-based E&P company, Chesapeake Energy Corp., saw “small amounts of all” of its convertible issues trading.

A trader said the 2.5% convertible notes due 2037 opened around 88.75 but soon drifted down to 87.625. The trader noted that the paper – which becomes putable in May 2017 – was “decaying pretty quickly.”

The stock ended down 38 cents, or 9.2%, at $6.71.

UTi under pressure

A trader said UTi Worldwide Inc.’s bonds were “getting hit” in Monday trading.

“They’ve been brutalized for weeks,” he added.

The trader pegged the 4.5% convertible notes due 2019 at 73.5 bid, 73.875 offered, down from a 74 to 74.25 context previously.

The trader also noted that the company’s stock had hit a new 52-week low, closing down 24 cents, or 4.97%, at $4.59.

On Sept. 4, the third-party logistics company reported a steep quarterly loss, resulting in company management pulling back on its forward-looking projections. The company has sought potential buyers over the last couple of years but has failed to come to terms with anyone.

Mentioned in this article:

Chesapeake Energy Corp. NYSE: CHK

New Source Energy Partners LP OTC: NSLP

SandRidge Energy Inc. NYSE: SD

UTi Worldwide Inc. Nasdaq: UTIW

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