Energy-related convertibles move lower; other sectors hold in on swap; Depomed drops

By Rebecca Melvin

New York, Jan. 11 – U.S. energy convertibles traded down on Monday as the sell-off in crude oil prices continued, but most other convertible paper traded mostly in line on a dollar-neutral, or hedged, basis, market players said.

“Energy was a little bit lower, but everything else was mostly in line,” a New York-based trader said.

The sell-off in crude oil prices worsened, with the close for West Texas Intermediate crude oil for February delivery dropping another $1.75, or 5.3%, to $31.41 per barrel. With the new year a little more than a week old, oil is down nearly 15%.

Oil has weakened amid the prospects of lower demand in China as the world’s second-largest economy slows and as supply spikes. Saudi Arabia continues to produce at its highest ever levels as market players anticipate that Iran’s return to the oil markets is imminent.

Goldman Sachs said in a note on Friday that sustained lower prices were needed in the first quarter so that producers will adjust their budgets to reflect $40 per barrel oil for 2016.

Among energy names Cobalt International Energy Inc.’s convertible bonds were notably busy and lower. Cobalt shares traded down 8% amid no particular news except that the energy space overall was weaker.

Whiting Petroleum Corp.’s 1.25% convertibles traded down several points to 62 while shares of the Denver-based oil and gas exploration and production company closed down 49 cents, or 6.3%, at $7.28.

Chesapeake Energy Corp. was another name mentioned in trade as shares of the Oklahoma City-based oil and natural gas company fell another 6% to $4.17.

But a smaller name, Hornbeck Offshore Services Inc., was quiet, a New York-based trader said, while shares of the Covington, La.-based provider of offshore supply vessels fell 60 cents, or 7%, to $7.80.

Other energy convertible mandatory issues traded down in line with the underlying common shares. The Kinder Morgan Inc. mandatories fell to $39.43, which was down $1.77, or 4.3%, as the Kinder Morgan common stock fell 62 cents, or 4.1%, to $14.16.

Southwestern Energy Co., which priced $1.5 billion of the mandatory convertible preferred stock in mid-January last year saw that paper drop $1.06, or 6%, to $16.98 against the Southwestern common stock that dropped 41 cents, or 6%, to $6.54.

WPX Energy Inc.’s convertible mandatory was down $1.20, or 4%, to $27.92 on Monday and fell another 2% in after-hours trading, while the common stock of WPX Energy lost 28 cents to $4.97. Volume in the stock was higher than average, but for the Southwestern mandatory it was lower than average.

Elsewhere, DepoMed Inc.’s 2.5% convertibles due 2021 slipped about 4 points to below par, according to Trace data, with shares of the Newark, Calif.-based specialty pharmaceutical company lower by about 4.5% to $14.74 last.

It was not clear what an accurate level for DepoMed would be or how the bond was doing on a swap basis. “I’m trying to figure that out myself,” a New York-based trader said.

DepoMed develops and commercializes products for pain and disorders of the central nervous system. Last week Mizuho Securities initiated coverage on the company at “neutral.”

The health care sector was in focus as the annual J.P. Morgan health care conference was underway in San Francisco.

Convertible issuers scheduled to present at the conference on Monday included: Medicines Co., Wright Medical Group NV, Molina Healthcare Inc., Jazz Pharmaceuticals plc, Teva Pharmaceutical Industries Ltd., Acorda Therapeutics Inc., Illumina Inc., Incyte Corp., Ironwood Pharmaceuticals Inc., HeartWare International Inc., Teleflex Inc., Pacira Pharmaceuticals Inc. and United Therapeutics Corp.

Energy, Cobalt weaker

Cobalt’s 2.625% convertibles due 2019 traded down to 52 on Monday from about 53 on Friday and down from about 57 at the end of 2015, which was a week-and-a-half ago.

“The most volume on the day was trades in CIE,” a trader said of the activity in Cobalt.

One trader said that its high-yield issues were in about a point, but its convertibles were in about 0.5 point.

Cobalt shares fell 34 cents, or 8% to $3.93.

Also trading “a little bit,” was Whiting. The bonds traded at 63, which was down about 1.5 points on an outright basis, a trader said.

Whiting shares fell 49 cents, or 6.3%, to $7.28.

Mentioned in this article:

Chesapeake Energy Corp. NYSE: CHK

Cobalt International Energy Inc. NYSE: CIE

DepoMed Inc. Nasdaq: DEPO

Kinder Morgan Inc. Nasdaq: KMI

Southwestern Energy Co. NYSE: SWN

Whiting Petroleum Corp. NYSE: WLL

WPX Energy Inc. NYSE: WPX

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