Energy convertibles resilient despite failed talks to limit oil output; Jarden in focus

By Rebecca Melvin

New York, April 18 – Energy convertibles were better on Monday after initially trading at slightly lower pricing but with a stronger bid following news that global oil producers failed to agree to freeze output at a meeting Sunday in Doha, Qatar.

Russia and members of the Organization of Petroleum Exporting Countries could not negotiate an agreement largely because Iran, which has been exporting more oil following the lifting of economic sanctions on that country, was reluctant to agree to production limits and then Saudi Arabia also declined to agree to limits.

Oil prices initially slumped more than 5% late Sunday but were holding up in early trading. Meanwhile, equities turned around, and that was influential on what was happening in the convertibles market, a New York-based trader said.

“Bidders were stepping in and buying at a little lower pricing, but offers are difficult to find,” the trader said at late morning.

Whiting Petroleum Corp. actually ended up on the day, and Chesapeake Energy Corp. was mostly firm.

Jarden Corp.’s convertible were in focus in early trading after its acquisition by Newell Rubbermaid Inc. was completed on Friday. Jarden set make-whole conversion rates for the notes that are convertible up to the fundamental change repurchase date of April 25 as stipulated under the notes’ indentures.

Jarden’s 1.125% convertibles due 2034 traded a little and were higher by about a point to 129. The other two Jarden notes, including the 1.875% convertibles due 2018 and the 1.5% convertibles due 2019, trade essentially like stock surrogates and were not in focus for many convertibles traders.

The Jarden convertibles that are not converted will revert to Newell Rubbermaid, or Newell Brands as the new company will be known as. There is no change in valuation in terms of credit as both are good credits, a New York-based trader said.

Rambus Inc.’s convertible was not seen to have traded on Monday but was eyed as a potential name in trade on Tuesday on the heels of the Los Altos, Calif.-based technology licensing company’s earnings release after the market close, which disappointed investors regarding the outlook for its current quarter.

Whiting trades up

Whiting Petroleum’s 1.75% convertibles traded up on Monday, closing the day at 68 versus an underlying share price of $10.00. Shares actually closed higher at $11.05, or up 38 cents, or 3.6%.

The convertibles were at 66 bid, 67 offered on Friday.

There were buyers of Whiting paper on Monday, a trader said.

The expectation heading into the session was that paper would be lower. “When I looked last night and saw oil down 5.5%, I didn’t think it was going to be a good day,” a trader said.

Aside from the failed talks to cap oil output among OPEC and other producers, there were other factors influencing the energy patch, including a Kuwaiti oil strike, which was helping keep a floor under oil prices, the trader said.

In general, the expectation is that the supply and demand balance is going to be pretty positive and that oil is going to be stable if not higher even without the OPEC commitment, the trader said.

The price of West Texas Intermediate crude oil for June delivery on the New York Mercantile Exchange was last down $0.24, or 0.6%, at $41.47 per barrel.

Jarden adds

Jarden’s 1.125% convertibles de 2034 traded at 129 and the stock was no longer trading after the company’s marriage with Newell Rubbermaid was completed on Friday.

The make-whole conversion rate for each $1,000 principal amount of the 1.125% notes is for 21.6724 shares of stock.

For each share of Jarden common stock that would have been issued based on the increased conversion rates, holders who convert will receive the merger payment consisting of 0.862 of a fully paid and non-assessable share of Newell Brands’ common stock, plus $21.00 in cash.

The merger amount for each $1,000 principal amount for holders who convert will be a cash amount, including in lieu of fractional shares, and common shares as follows: For the 1.875% convertibles, that will be $698.77 cash and 27 shares.

Under the note terms, the convertibles are putable on the fundamental change repurchase date at par plus accrued interest.

Jarden said it will issue the fundamental change notice by April 25.

Jarden’s stock closed at $58.97 last Friday.

Rambus quiet before earnings

Rambus’ 1.125% convertibles due 2018 traded last at 126.5, but those bonds were not seen to have traded since April 8, according to Trace data.

Rambus shares closed up a dime, or 0.7%, to $13.77, but the stock fell 10% in after-hours action.

Rambus reported first-quarter net income of $1.9 million, compared to $9.5 million in the first quarter of 2015 and compared to $13 million for the fourth quarter.

Net income excluding one-time items was $14.6 million, or 13 cents per share, compared to 14 cents in the same period a year earlier.

Rambus reported first-quarter revenue of $72.7 million, which was down 5% from the fourth quarter of 2015, due primarily to lower patent and technology royalty revenue from various customers, the company said in a news release.

Looking ahead, the company expects revenue to be between $72 million and $77 million for the second quarter, which was below estimates for revenue of $78 million to more than $79 million in the current quarter. According to the company, achieving revenue in this range will require that it sign new customer agreements for mobile payments software and solutions licensing among other matters.

Mentioned in this article:

Chesapeake Energy Corp. NYSE: CHK

Jarden Corp. NYSE: JAH

Rambus Inc. Nasdaq: RMBS

Whiting Petroleum Corp. NYSE: WLL

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