By Abigail W. Adams
Portland, Me., Dec. 21 – The convertibles market was quiet Thursday with attention turning towards the new year and what it will mean for new issuance.
The primary market is looking to tax changes to spur corporate offerings of convertible securities. And the secondary market is looking to the primary market to bring new deals to increase liquidity.
Whether the reduction in the corporate tax rate and cap on the deductibility of interest paid on corporate debt will be the catalyst for convertible issuance that some are hoping for remains to be seen.
Meanwhile in Thursday’s session, Cobalt International Energy Inc.’s 2.625% convertible notes due 2019 and 3.125% convertible notes due 2024 remained in focus after a $500 million settlement for the bankrupt company’s Angola interests was announced Wednesday.
The long busted convertible notes from the Houston-based petroleum and natural gas exploration company both soared during Wednesday’s session but lost strength during active trading Thursday.
Medicines Co.’s 2.75% convertible notes due 2023 made a 4 point gain on Thursday, rising with the underlying equity. The notes are still languishing below par with analysts forecasting another negative earnings report in February.
Despite Seacor Holdings Inc.’s amendment to the terms of its 2.5% convertible notes due 2027, which added an additional put option in 2018, holders of the notes redeemed $31 million on Dec. 19.
While the company’s 2.5% notes have traded around par for much of their existence, Seacor’s 3% notes remain in the 95 range.
Cobalt continues
Cobalt continued to dominate trading on Thursday with the company’s 2.625% notes and 3.125% notes losing strength throughout the session. Both notes were in the 11 to 12 range prior to Wednesday, when the company announced it would receive $500 million for its interests in Angola.
The company’s major assets were its interests in Angola and the Gulf of Mexico.
Both notes rose 20 points to trade in the 30s during Wednesday’s session before solidifying in the 25 range. The 2.625% notes traded between 22 and 26 before closing Thursday’s session at 23.625, according to Trace data.
The company’s 3.125% notes traded in a range of 20.315 to 26 before closing the session at 24, according to Trace data.
The notes are actively changing hands in the run up to the distribution of assets from Cobalt’s bankruptcy.
With the figure from the Angola property known, holders are now looking towards the amount Cobalt’s Gulf of Mexico property is worth to determine what they will receive from the bankruptcy, a market source said.
Unhealthy medicines
Medicines 2.75% convertible notes due 2023 saw some upward momentum during Thursday’s session as its underlying equity made gains. The notes traded up to 95 after languishing in the low 90s for much of December.
Medicines’ 2.5% convertible notes attracted no attention Thursday but have remained in the 104 to 105 range for much of the month. Both notes experienced a drop in value after the company posted its third quarter earnings on Oct. 25. That report showed a decline in revenue and a negative return on equity of 174.68%.
The notes continued to contract after the pharmaceutical company sold its infectious disease unit to Melinta Therapeutics at the end of November. The 2.75% notes were trading above par prior to the earnings report and the 2.5% notes were trading in the 120s, according to Trace data.
Medicines stock was up 6.07% at $27.80 at market close Thursday. Analysts are questioning whether the upward momentum has staying power with expectations for the company to report negative earnings per share of $1.48 in its fourth quarter earnings report in February.
The earnings per share for fiscal year 2017 is expected to be in a range of negative $8.48 to negative $9.10, according to Zacks Investment Research.
Seacor’s put
The extra put option on Seacor’s 2.5% notes in 2018 did not prevent holders from exercising their right to put the notes on Dec. 19. Holders redeemed $31 million of the notes leaving $64.45 million outstanding.
The Fort Lauderdale, Fla.-based offshore oil, gas, and marine equipment company amended the terms of its 2.5% notes on Dec. 13 to add an additional put option on May 31, 2018.
“It cost them money to do that,” a market source said. “There was something in it for them.”
The extra put option may have been added with the hope holders would wait to redeem the notes, according to a market source.
Notes put back to the company were settled in cash, according to a Securities and Exchange Commission filing.
The 2.5% notes have largely traded at par for the past year. The company’s 3% convertible notes due 2028 have traded in the 93 to 95 range for most of December, according to Trace data.
The 3% notes saw one trade during Thursday’s session at 95.938, according to Trace data.
Seacor stock was down 0.02% on Thursday to $48.37.
Mentioned in this article:
| Cobalt International Energy Inc.: | OTCMKTS: CIEIQ
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| Medicines Co.: | Nasdaq: MDCO
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| Seacor Holdings Inc.: | NYSE: CKH
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