Morning Commentary: Peabody convertibles pop yet again; Stone Energy inks RSA; market muted

By Stephanie N. Rotondo

Seattle, Oct. 21 – A convertible bond trader said Peabody Energy Corp. was “basically the big name” in early Friday trading, as the bankrupt coal producer’s debt continued to gain momentum.

The trader said the 4.75% convertible junior subordinated debentures due 2066 were trading with “mostly 20 handle prints.

“They keep going higher and higher every day,” he said.

Paper was trading near 14 as of Thursday’s close.

The name has been gaining traction for the last few weeks, helped in large part by increasing coal prices.

Elsewhere in the distressed energy space, Stone Energy Corp. said it had inked a restructuring support agreement with holders of its 1.75% convertible notes due 2017 and its 7.5% senior notes due 2022. The RSA will eventually put the Lafayette, La.-based oil and gas producer into bankruptcy.

The holders own 85.4% of the outstanding debt. That will leave very little for the market to play with, a trader said.

“Two guys own most of these two issues,” the trader said. He opined that there were about $20 million to $22 million of the convertibles that were “unspoken for” under the RSA.

“That makes everything a little more difficult to trade,” he noted, seeing little to no activity in the name.

The stock (NYSE: SGY), however, plunged more than 42% in early trading to $4.08.

Overall, liquidity remained thin, with one trader attributing the lack of volume to it being a Friday.

“I really think people are just waiting for the election,” he added.

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