Convertibles quiet amid stock volatility; Whiting wavers after January presentation

By Rebecca Melvin

New York, Jan. 4 – Convertibles trading was light on Monday and levels were little changed amid outsized volatility in the broader markets and sharp decline in equities on the heels of a big sell-off in Asia stocks.

There were also concerns over the geopolitical situation in the Middle East after Saudi Arabia broke off diplomatic relations with Iran.

“It was an inactive day compared to how everything else was trading,” a New York-based convertibles trader said, contrasting the convertibles market with the broader markets.

“There was only $190 million of bonds on the tape, so it was still a small day and not very active,” he said.

But he added that convertibles players were relieved to see a late rally in the “general markets,” saying: “It will be interesting to see how the market responds when everyone gets back from the holidays and things get going in earnest.”

The S&P 500 stock index came back from a nearly 5% drop that took it as low as 1,989.68 early Monday, ending the session down a less dramatic 31.28 points, or 1.5%, at 2,012.66. The Dow Jones industrial average also pared early losses to finish down 276.09 points, or 1.6%, at 17,148.94, while the Nasdaq Composite index ended down 104.32 points, or 2.1%, at 4,903.09.

The losses were on top of a negative 2015 close for the S&P and Dow indexes, both ending the year down about 1% for their worst showing since the financial crisis of 2008. But the Nasdaq was positive for 2015 despite a drop on the final day of trading.

China’s stock indexes plunged about 7% overnight after disappointing weekly manufacturing data. In response, some convertibles from Chinese names were lower, a trader said.

Vipshop Holdings Ltd.’s 1.5% convertibles due 2019 stumbled to about 102.5 bid, 103 offered, which was down from 106ish previously. Shares of the Guangzhou, China-based online discount retailer fell $1.22, or 8%, to $14.05. But that wasn’t as low as the drop in November to 101 from 117 against shares that fell to $13.60 when the company cut its third-quarter revenue guidance, citing warmer-than-expected weather in China.

Elsewhere, Iconix Brand Group Inc.’s 2.5% convertibles due in June were offered down at 88, a second New York-based convertibles trader said. The bonds were at 89.5 to 90 on Dec. 31 and traded in the low 90s in mid-December.

Shares of the New-York-based brand management company were sliding in early trade and were down 6% before they came rallying back to close up 3 cents at $6.86.

Oil prices were volatile. Investors were unsettled by news that Saudi Arabia severed its diplomatic relations with Iran on Sunday. Sparking the action were Iranian protests following the Saudis’ executions of 47 people Saudi Arabia described as terrorists, including a high profile Shiite Saudi cleric named Nemer al-Nemer.

On Monday, Bahrain cut its diplomatic ties with Iran as well.

West Texas Intermediate crude oil was trading up about 2% to $37.82 per barrel in the early going but ended lower by 0.4% at $36.90 per barrel.

Whiting Petroleum Corp.’s 1.75% convertibles changed hands at 68, which was down from 68.5 to 69 previously, while shares of the Denver-based oil and gas exploration and production company pared early losses to end in the green, or up nearly 1% at $9.53.

Behind the trading action of Whiting’s convertibles was a company presentation that was released on Monday.

Whiting edges downward

Whiting’s 1.75% convertibles due 2018 traded down a little bit at 68.5 to 69 in the early going when the bonds’ underlying shares were down about 3%.

Traders were looking at Whiting’s January presentation, which turned out to be little changed from its November presentation, a New York-based trader said.

In the report of 18 slides, Whiting said that it expects to be a stronger company and prosper at current crude oil prices. It also reported that it had sold $400 million of assets in 2015 and was anticipating cash flow and cap ex to be equal in 2016 at a Nymex crude oil price of $50 per barrel.

It predicted that its $1 billion of discretionary cash flow would match the $1 billion total capex budget in 2016.

It planned to continue to grow as prices rise and also to continue to reduce leverage by divesting non-core assets, including non-Bakken, non-Niobrara and select midstream assets and to grow with a more efficient asset base.

Whiting lauds itself as being one of the most oil-focused independent E&P companies in North America with more than 80% of its production and reserves in light sweet crude in its Williston Basin Bakken and Three Forks reserves in North Dakota.

The company’s crude oil hedge positions remained unchanged from where they had been reported in October.

Mentioned in this article:

Iconix Brand Group Inc. Nasdaq: ICON

Vipshop Holdings Ltd. Nasdaq: VIPS

Whiting Petroleum Corp. NYSE: WLL

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