Rexnord drops amid Trump Tweets; Chesapeake rises on asset sale news; calendar builds

By Stephanie N. Rotondo

Seattle, Dec. 5 – The convertible bond market was a little more muted than it was in the previous week, a trader said on Monday.

For instance, he saw little follow-through in Rexnord Corp.’s $350 million of 5.75% series A mandatory convertible preferreds, a deal that priced Friday with a 20% initial conversion premium.

The trader saw the issue – which had traded up above the $50-par mark upon pricing – in a $49.80 to $49.90 context in early dealings.

The paper dipped as low as $49.25 during the session.

The trader noted that the common stock had also come in.

The equity closed at $20.05, down 22 cents, or 1.09%. The low of the day was $19.77.

The trader said that at those levels, the bonds were trading around an 80% delta, “which is generally correct for small premium estimates like this.”

The weakness in the stock was attributed to Tweets made by president-elect Donald Trump on Friday, in which Trump called out the company for its plans to move an Indiana production plant to Mexico.

Meanwhile, Chesapeake Energy Corp.’s 5.5% convertible notes due 2026 were moving up on news the company was selling part of its Haynesville Shale area property for $450 million.

The convertibles were trading in a 112 to 112.5 context, according to a trader.

The equity was firming on the news as well, adding nearly 5% in early trading, but ultimately closing at $7.48, a gain of 25 cents, or 3.46%.

While better for the day, both the bonds and the stock might have been stymied by a nearly 1% decline in domestic crude oil prices. The commodity was pressured as concerns that OPEC’s new production cut agreement might not do enough to stem supply.

Anthem Inc.’s 2.75% convertible notes due 2040 were also trading on Monday, ending unchanged to a point lower around 200.

“They are not convertibles at this point,” a trader said of the notes and their high price. “It’s arb guys setting up options, that’s all it is.”

The underlying equity finished down $1.01 at $144.09.

Teradyne, Zillow in market

There were no dollar-denominated deals priced on Monday, but two deals were announced during the session for combined issuance of $800 million.

Teradyne Inc. announced a $400 million Rule 144A offering of senior convertible notes due Dec. 15, 2023.

The deal includes a $60 million over-allotment option.

Interest will be payable semiannually in cash. Conversions will be settled in cash, common shares or a combination thereof.

The company plans to use proceeds, in part, to pay for convertible note hedge transactions associated with the offering. The company also plans to use the funds to repurchase up to $80 million in common stock under its existing share repurchase authorization.

In connection with the offering, Teradyne said its board of directors had approved a new $500 million share repurchase program that will go into effect on Jan. 1. The current authorization expires Dec. 31.

Also announced on Monday was a $400 million sale of convertible senior notes due 2021 from Zillow Group Inc.

Like Teradyne, there is a $60 million over-allotment option on that Rule 144A deal.

Conversion of the bonds will be settled in cash, class C stock or a combination thereof.

Proceeds will be used, in part, to pay the cost of capped call transactions associated with the offering. Remaining funds will be used for general corporate purposes, which may include the repurchase of 2.75% convertible senior notes due 2020 linked to subsidiary Trulia LLC, for general and administrative matters, for capital expenditures, for acquisitions or for investments in technologies or businesses that complement Zillow’s business.

Mentioned in this article:

Anthem Inc. NYSE: ANTM

Chesapeake Energy Corp. NYSE: CHK

Rexnord Corp. NYSE: RXN

Teradyne Inc. NYSE: TER

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.