Energy names jump with higher crude oil prices; Intel bonds mixed; Pernix to tap market

By Rebecca Melvin

New York, April 15 – Energy convertibles moved up strongly on both an outright and hedged basis on Wednesday as crude oil prices spiked to their highest levels of the year and data came in suggesting that crude production may be peaking and global demand rising.

Whiting Petroleum Corp.’s convertibles were up about 0.5 point on a dollar-neutral, or hedged, basis in active trade, traders said.

Penn Virginia Corp.’s 6% convertible preferred shares traded up to 69 versus an underlying share price of $8.00. Shares of the Radnor, Pa.-based oil and gas drilling company jumped 7.4%.

“Energy names were up about a point across the board,” a New York-based convertibles trader said.

Elsewhere, Intel Corp.’s two sister convertibles traded higher on an outright basis with one higher on swap and the other flat on the back of quarterly results that pulled the chip giant’s shares higher by 4%.

SanDisk Corp.’s convertibles were not very active but a little better on an outright basis ahead of earnings news expected after the market close from the Milpitas, Calif.-based flash memory chip maker.

Early Wednesday, the SanDisk 1.5% convertibles were trading at 148.125 bid, 148.375 offered versus a share price of $70.32 and the SanDisk 0.5% convertibles were at 104.375 bid, 104.625 offered versus a share price of $70.32, a convertibles analyst said.

The convertible preferreds of Bank of America Corp. and Wells Fargo & Co. were little moved by earnings from those banks.

Those issues “are deeply out-of-the-money and don’t move with the common shares; they mainly move with interest rates,” a New York-based convertibles analyst said.

Toward the end of the session, the Bank of America 7.25% convertible preferred series L shares were unchanged late at $1,170.00, and the Wells Fargo 7.5% convertible preferred series L shares were down 38 cents, or 0.03% at $1,228.62.

Internationally, Nokia Corp. and Alcatel-Lucent SA confirmed their tie up of the two large networking companies. The Alcatel bonds had surged Tuesday amid speculation about the potential deal. On Wednesday, the Alcatel bonds were down slightly on a dollar-neutral basis. But hedge funds were still buying them in expectation that the deal would ultimately go through, a New York-based trader said.

“There are a few more points to be made on all three bonds when the deal closes,” the trader said.

In the primary market, Morristown, N.J.-based specialty pharmaceutical company Pernix Therapeutics Holdings Inc. said it plans to price $120 million of six-year convertible senior notes after the market close on Thursday to yield 3.75% to 4.25% with an initial conversion premium of 27.5% to 32.5%.

Whiting Petroleum expands

Whiting’s 1.25% convertibles, which debuted in the convertibles market last month, moved higher again on Wednesday after a strong push up on Tuesday to trade at 116.25, which was up 1.25 points, according to Trace data.

Whiting shares rose $1.40, or 4%, to $37.15.

Whiting was better by about 0.5 point on the day, which was lower than the improvement notched by the sector as a whole but still very positive given that bond was trending higher in recent sessions.

About the energy sector, one trader said, “Everything is up, but Whiting is the one balanced name, most of the rest was made up of preferreds, and lower-dollar value bonds.”

In addition to Penn Virginia, Energy XXI Ltd.’s 3% convertibles due 2018 traded higher to about 47 from 43.75. Shares of the Hamilton, Bermuda-based oil and gas company surged 8% to $4.52.

U.S. oil inventories rose by a higher-than-expected 1.3 million barrels in the week ended April 10 to 483.7 million barrels, the U.S. Energy Information Administration said Wednesday afternoon.

Prior to the EIA data, crude-oil and energy stocks and bonds had been on the rise after the International Energy Agency said global oil demand would rise by 1.1 million barrels a day this year.

Light, sweet oil for May delivery hit $55.58 a barrel, the highest since Dec. 29, after the EIA stockpile report. Brent, the global benchmark, traded up $1.52, or 2.6%, at $59.95 a barrel on ICE Futures Europe.

Intel mixed on swap

Intel’s 3.25% convertibles due 2039, which were trading more actively than the more balanced Intel 2.95% convertibles, were up several points to 164.375 bid, 164.75 offered versus an underlying share price of $32.80, a New York-based convertibles analyst said. The bond had traded late Tuesday at 161.9 after the earnings report was released.

That bond was called better on a swap basis by about 0.5 point.

Intel’s 2.95% convertibles due 2035 were trading at 127.125 bid, 127.5 offered versus a share price of $32.80. That was up from around 125 last, but it was flat, or in line, with the move in the underlying shares.

Shares of the Santa Clara, Calif.-based company rose $1.34, or 4.3%, at $32.83.

Intel reported results that were largely in line with expectations. The report was followed by a couple of analysts upgrades, including that of Wedbush, which raised its rating on the stock to “outperform” from “neutral,” citing stronger growth expectations for the third quarter.

Pernix to price

The specialty pharmaceutical company with a $382.7 million market cap saw its shares plunge in after-hours trading after it announced that it is offering $120 million of six-year convertibles in a 4 (2) Regulation D deal, with Rule 144A trading capabilities.

Price talk is for a 3.75% to 4.25% coupon and 27.5% to 32.5% premium.

The notes are convertible under certain conditions. They are non-callable for four years and then are provisionally callable if shares exceed 130% of the conversion price. Investors will be compensated via a make-whole table in the event of an early call.

Proceeds will be used to finance the cash consideration of its previously announced acquisition of the Zohydro ER franchise, for related fees and expenses, with remaining proceeds for working capital and other general corporate purposes, including acquisitions or investments

Mentioned in this article:

Alcatel-Lucent NYSE: ALU

Bank of America Corp. NYSE: BAC

Intel Corp. Nasdaq: INTC

Nokia Corp. NYSE: NOK

Penn Virginia Corp. NYSE: PVA

Pernix Therapeutics Holdings Inc. NYSE: PTX

SanDisk Corp. Nasdaq: SNDK

Wells Fargo & Co. NYSE: WFC

Whiting Petroleum Corp. NYSE: WLL

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