Integrated Device Technology drops outright, slips on swap; Chesapeake underperforms

By Rebecca Melvin

New York, Feb. 2 – U.S. convertibles were mostly quiet as equity markets and bond yields came in and crude oil prices moved lower. But there were situations that sparked company- and sector-specific trade.

Integrated Device Technology Inc.’s convertibles plunged on an outright basis but were down just 0.5 point on a dollar-neutral, or hedged, basis on Tuesday as the underlying shares tanked 27% after mixed analysts’ ratings on its Zentrum Mikroelektronik Dresden AG, or ZDMI, acquisition, a New York-based trader said.

Integrated Device also offered up disappointing guidance but positive fiscal third-quarter results after the market close on Monday.

Chesapeake Energy Corp.’s convertibles fell, underperforming the underlying shares of the Oklahoma City-based natural gas producer, as crude oil prices dropped back by more than 5% to under $30.00 per barrel.

Meanwhile, Cheniere Energy Inc.’s convertibles outperformed shares of the Houston-based liquefied natural gas company, which fell $2.17, or 7%, to $27.15, a New York-based trader said.

Cobalt International Energy Inc.’s 3.125% convertibles were quiet despite a 15% slide in the underlying shares of the Houston-based oil and gas company.

Oil prices dropped back sharply, with West Texas Intermediate crude oil for March delivery falling $1.76, or 5.6%, to $29.86 per barrel.

Elsewhere, Yahoo! Inc.’s 0% convertibles traded little changed ahead of the internet company’s quarterly results, which were released after the market close. The company revealed a loss of $4.4 billion for its fourth quarter due to a large write-down on revenue of $1.27 billion. The company also announced plans to cut about 15% of its workforce and said it would explore the sale of nonstrategic assets.

By the end of 2016, Yahoo plans to have about 9,000 employees and less than 1,000 contractors.

The Yahoo 0% convertibles traded at around 96 against shares that settled down 1.7% to $29.06. Shares were down another 2% in after-hours action.

Twitter Inc.’s 1% convertibles was holding in despite a slide in the underlying shares of the San Francisco-based social media company after Stifel cut its rating on the shares to “sell’ from “hold.”

Twitter’s 1% convertibles due 2021 changed hands early Tuesday at 83, little changed from Monday, as Twitter shares fell $1.26, or 7%, to $16.65.

The Twitter convertibles moved up on Monday amid takeover chatter, a New York-based trader said.

“It’s been another interesting day,” a New York-based trader said. “My focus has been Chesapeake, which continued to underperform.”

The S&P 500 stock index fell 36.35 points, or 1.9%, to 1,903.03, after a less than 1 point decrease on Monday, and following a 5% loss for January. The Nasdaq stock market fell 103.42 points, or 2.2%, to 4,516.95, after ending up 0.1% on Monday and following an almost 7% drop for January. The Dow Jones industrial average lost 295.65 points, or 1.8%, to 16,153.64 after a 0.1% loss on Monday, and following a 5.5% loss for January.

Integrated Devices tanks

Integrated Device’s 0.875% convertibles due 2022 were quoted down 13 points on an outright basis to 87.875 versus an underlying share price of $18.89.

Integrated shares closed down $6.83, or 27%, to $18.67.

The move lower on a swap basis was only about 0.5 point, a New York-based trader said.

The stock and bonds fell due to mixed ratings on the ZMDI acquisition, the trader said.

The acquisition closed Dec. 7, and the $374 million convertible note offering was conducted a week later with a concurrent accelerated share repurchase program.

The San Jose, Calif.-based communications semiconductor company said that the integration of the acquisition is progressing well and that it is leveraging the combined product portfolios through cross-selling opportunities.

The company also reported fourth-quarter earnings and revenue that met consensus estimates.

Quarterly revenue rose 17.5% to $177.6 million, including $3.4 million attributable to the ZMDI acquisition, driven primarily to demand for IDT’s communications infrastructure products. That resulted in a 34.9% increase in adjusted net income to $52.2 million and 40% growth in adjusted earnings per share to $0.35.

Guidance for the fiscal fourth quarter was for revenue of $187 million, plus or minus $5 million, representing 18% growth. That includes expectations for seasonal declines of 8.5% in communications and 4.5% in computing, a 38% increase in the consumer end market driven wireless power customer product ramps and new mobile sensing business, and roughly $14 million in revenue from the new automotive and industrial segment. But analysts’ consensus estimates were for higher fiscal fourth-quarter revenue of $196.7 million.

Chesapeake underperforms

Chesapeake Energy’s 2.5% convertibles traded down to about 43. That was down a couple of points, a trader said.

Chesapeake’s two series of convertible preferred shares were also lower. One of the Chesapeake 5.75% convertible preferred shares were quoted down to 121 from 130.5 and the second 5.75% convertible preferred was seen down to 126 from about 135.25.

Chesapeake Energy shares closed down 22 cents, or 7%, at $2.99.

Chesapeake continued to underperform, a trader said, but Cheniere improved on a dollar-neutral basis, and is a “decent credit,” he said.

Chesapeake shares have dropped nearly 30% this year so far, following a 77% drop in 2015, making it the worst-performing stock in the S&P 500 last year.

The Cheniere 4.25% convertibles due 2045 traded around 48, compared to 49.75 on Monday and 51 to 53 on Friday.

Cheniere shares closed down $2.13, or 7.3%, to $27.15.

Mentioned in this article:

Cheniere Energy Inc. NYSE: LNG

Chesapeake Energy Corp. NYSE: CHK

Cobalt International Energy Ltd. NYSE: CIE

Integrated Device Technology Inc. Nasdaq: IDTI

Twitter Inc. Nasdaq: TWTR

Yahoo! Inc. Nasdaq: YHOO

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.