Energy convertibles extend gains; Whiting outperforms on exchanges; Synergy sags on exchange

By Rebecca Melvin

New York, March 18 – Energy sector convertibles were in focus again on Friday and traded mostly better amid improving sentiment, albeit in light volume, market sources said.

Whiting Petroleum Corp.’s 1.25% convertibles due 2020 were a star of the session, settling up about 3 points on swap after jumping as much as 9 points intraday after news that the Denver-based energy exploration and production company has sealed four exchanges of straight debt for convertibles.

Parts of four different bond issues were exchanged for like amounts of convertibles with the same coupons and maturities. Two of the exchanges were for $150 million or more, and those were likely to trade on convertible desks, a New York-based trader said.

Cobalt International Energy Inc.’s two convertible bonds, which have been lagging the recent energy rally, edged up in active trade.

The Helix Energy Solutions Group Inc. 3.25% convertibles due 2032 looked to have added another 3 points in a small trade on Friday for the Houston-based offshore oil services company, a New York-based trader said.

Chesapeake Energy Corp.’s 2.5% convertibles due 2037 added another 2.5 points on Friday to 75, as the surge in that issue showed no sign of abating.

The Chesapeake 2.5% convertible is now up 50 points from lows notched in the depths of February. Shares of the Oklahoma City-based natural gas company gained another 12 cents, or 2.5%, to $4.91 on Friday, after gaining 9% on Thursday.

Energy XXI Ltd.’s convertibles moved up to 15 from 12 as the Houston -based oil and gas company’s stock surged 25%.

But Stone Energy Corp. was lower along with the underlying shares of the Houston-based energy E&P company on Friday, with the convertibles changing hands as low as 45, which was down from 49. Shares were off 11 cents, or 7%, to $1.43.

“Stone Energy traded down again. It’s the only one that has really been moving the other way. The trend has been straight up. Sentiment has gone from: every oil company is going to file for bankruptcy this year, to: all will survive. And the truth will probably end up somewhere in the middle,” a New York-based trader said.

Elsewhere, Synergy Pharmaceuticals Inc.’s 7.5% convertibles due 2019 were indicated down to 115 from about 129 as shares of the New York-based biopharmaceutical company fell 13.5% to $2.94.

The developer of drugs for gastrointestinal diseases entered into privately negotiated exchange agreements to swap common stock for $79.7 million principal amount of the convertibles plus $2.4 million in interest.

Synergy expects to issue about 33.3 million shares of common stock in association with the exchanges, which are expected to close March 25. After the exchanges, some $71.5 million of the 7.5% notes will remain outstanding.

In the equity markets, the Dow Jones industrial average edged up again. On Thursday, the Dow, which was down 10% a month ago in its worst ever start to the year, turned positive relative to Jan. 1, and the S&P 500 stock index crossed over and closed in positive territory on Friday.

Whiting gains on swap

Whiting’s 1.25% convertibles initially jumped 5 points to about 66, then rose to 69 before pulling back to 63 by the end the day, a trader said.

“That was still up about 3 points on swap,” the trader said.

Whiting shares closed down 76 cents, or 8.4%, at $8.34.

Whiting entered into privately negotiated agreements with holders of four series of straight notes, exchanging portions of them for convertibles with the same principal amount, coupon and maturity.

It is exchanging $48.7 million of 6.5% notes due 2018; $61.8 million of 5% notes due 2019; $152.5 million of 5.25% notes due 2021, and $166.7 million of 6.25% convertibles due 2023.

“There is improved sentiment of potential equitizing,” a trader said regarding the older 1.25% convertibles.

Other energy names in focus

The Helix convertibles tacked on another 3 points to 86 on Friday, after jumping 10 points on Thursday, but the bond was not trading actively.

The Chesapeake convertibles also continued to advance. The meteoric rise in that issue is part of the “general trend. They came out with earnings, and had better than expected asset sales. The market was looking for that and for them to pay off the bond in a year, and at the same time oil bottomed,” a New York-based trader said regarding the 50-point surge in the 2.5% convertibles.

Cobalt’s 3.125% convertibles due 2024 edged up 0.25 point to 45 and the Cobalt 2.625% convertibles due 2019 were at 53.25, also up 0.25 point.

Cobalt shares were down 8 cents, or 2%, at $3.33 at late morning and Whiting share were off 46 cents, or 5%, at $8.64.

Energy convertibles “continue to be on tear,” he said

Mentioned in this article:

Chesapeake Energy Corp. NYSE: CHK

Cobalt International Energy Inc. NYSE: CIE

Energy XXI Inc. Nasdaq: EXXI

Helix Energy Solutions Group Inc. NYSE: HLX

Stone Energy Corp. NYSE: SGY

Synergy Pharmaceuticals Inc. Nasdaq: SGYP

Whiting Petroleum Corp. NYSE: WLL

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