Energy convertibles in focus after OPEC accord; Rexnord’s new deal eyed; Wheeler REIT prices

By Stephanie N. Rotondo

Seattle, Dec. 1 – Energy-related convertible debt continued to fly higher on Thursday as oil prices remained strong in the wake of a production cut agreement from OPEC.

The oil cartel made the deal on Wednesday, surprising a market that had expected the talks to dissolve. As a result, domestic crude prices rose more than 8% in midweek trading and were up over 3% on Thursday.

A trader noted that the day’s “top two names are energy.” Specifically, Weatherford International Ltd. and Chesapeake Energy Corp., he said.

Weatherford’s 5.875% exchangeable notes due 2021 were pegged at 112.5 bid, 113 offered, a gain of 5 to 6 points outright. On Wednesday, the issue added 7 to 7.5 points.

As for underlying shares, they were up 37 cents, or 7.24%, at $5.48 in early dealings, but finished the session a penny weaker at $5.10.

Chesapeake’s 5.5% convertible notes due 2026 meantime neared the 109 mark, which amounted to gain of 4 to 5 points.

The 4.5% cumulative convertible preferreds (NYSE: CHKPD) were also better, rising 90 cents, or 2.14%, to $42.90.

The equity added a nickel to end at $7.05.

Sanchez Energy Corp.’s over-the-counter traded 4.875% series A convertible preferreds saw above-average trading as well, adding $2.66, or 10.5%, to close at $27.98.

The common stock improved 38 cents, or 4.52%, to $8.79.

In the primary space, there was little follow-through in Newpark Resources Inc.’s $87.5 million of 4% convertible senior notes due 2021, after being one of the top traders upon pricing on Wednesday.

“That is so typical in Convertland,” a trader said.

Once the deal hit the market on Wednesday, it traded up smartly to 107.75 bid, 108.25 offered.

But while Newpark’s luster was fading, the market did have a $350 million offering of series A mandatory convertible preferred stock from Rexnord Corp. to look forward to.

Price talk is 5.5% to 6%, with an initial conversion premium of 17.5% to 22.5%, according to a market source.

“I think there is going to be a huge amount of demand for that coupon,” a trader said. He added that the deal could attract “a lot of different buyers,” which could allow the company to grow the deal to as much as $450 million.

A trader pegged the issue at 51 bid in gray market trading on the $50-par issue.

Credit Suisse and Deutsche Bank Securities Inc. are the deal’s joint bookrunners. Barclays and Citigroup Global Markets Inc. are the co-managers.

The convertibles have a liquidation preference of $1,000 per share, or $50.00 per each depositary share.

The issue will automatically convert to common stock on Nov. 15, 2019. Prior to that date, holders of 20 depositary shares can cause the company to convert their holdings upon a fundamental change.

Upon a fundamental change, the conversion rate may be adjusted. Holders may also be entitled to a make-whole premium.

The preferreds are not redeemable.

Proceeds will be used to repay $169.6 million – or $195 million, if the over-allotment option is fully exercised – of an outstanding term loan. Remaining funds will be used for general corporate purposes.

While Rexnord was expected to price after Thursday’s close, details were not available as of press time.

What did price was Wheeler Real Estate Investment Trust’s $15,925,000 follow-on offering of its 8.75% series D cumulative convertible preferred shares (Nasdaq: WHLRD).

The add-on was originally slated to be in the amount of $21.75 million.

The convertible preferreds were sold at $24.00 a share, down from expectations of $24.50.

The paper ended the day at $23.80, a gain of 5 cents.

Compass Point Research & Trading LLC, Wunderlich Securities Inc. and Ladenburg Thalmann & Co. Inc. ran the books.

The securities are convertible into common stock at $2.12 a share.

The perpetual preferreds are non-callable for five years, and holders can put the paper at year seven. The company can opt to redeem the issue upon a change of control.

The dividend will step up by 2% a year beginning in 2023 until it reaches a maximum of 14%.

Proceeds will be used for future mainly grocery-anchored acquisitions and investments in properties and for general corporate purposes.

Mentioned in this article:

Chesapeake Energy Corp. NYSE: CHK

Rexnord Corp. NYSE: RXN

Sanchez Energy Corp. NYSE: SN

Weatherford International Ltd. NYSE: WFT

Wheeler Real Estate Investment Trust Nasdaq: WHLR

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