Convertibles soft as energy lags; Chesapeake weaker; Whiting down; Harmonic notes on tap

By Rebecca Melvin

New York, Dec. 7 – U.S. convertibles were generally weaker on Monday, but trade was muted as equities traded down, led by a steep drop in crude oil prices and a lower energy sector.

Chesapeake Energy Corp. was a market focus as the Oklahoma City-based energy company’s convertibles slumped again – albeit in light volume – after a sharp drop on Friday.

The drop was caused by a combination of the company’s news last week that it is offering to exchange $1.5 billion of its straight notes and also the tumble in oil prices following Friday’s meeting of the Organization of Petroleum Exporting Countries, which revealed disarray among its member nations.

Weaker oil also pulled down other energy names. Whiting Petroleum Corp.’s convertible bonds dropped to about 77.5, which was down more than 5 points from Friday, a Connecticut-based trader said.

“It’s pretty ugly,” the trader said. Hedge funds, which have performed dismally this past year, are attempting to prevent any further losses and make it through year-end and at the same time they are trying to make some money before year-end, sources said.

Hedge funds have had an awful year across multiple strategies as high-yield debt has lagged equities.

After the market close, Harmonic Inc. launched an offering of $125 million of five-year convertible senior notes.

The Harmonic issue was talked at a 2.75% to 3.25% coupon and a 37.5% to 42.5% initial conversion premium ahead of pricing expected late Tuesday.

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