Convertible bond market subdued ahead of election; energy names drained; Macquarie active

By Stephanie N. Rotondo

Seattle, Nov. 1 – Trading in the convertible bond market remained muted as the new month kicked off.

A trader said the feeling was that liquidity would continue to be constrained until after the presidential election.

“It’s crawling to a halt until we get this election over with,” he said.

He also noted that chatter indicated new issuance would be on hold until the votes are tallied – a move he said “doesn’t make any sense to me at all.”

Hillary Clinton, the Democratic nominee that is leading in the polls, has indicated that she would maintain the current administration’s economic policies. Republican candidate Donald Trump has decried said policies, but it is unclear what direction he would take.

Therefore, there is “no obvious upside scenario to waiting” to put out new deals, the trader said. At best, it is a “neutral to downside scenario.”

As for the day’s dealings, a trader said high-yield convertibles were “heavy, with energy and longer duration names coming in the most.”

For instance, he said Weatherford International plc’s 5.875% exchangeable senior notes due 2021 were down 7 points outright, or 1.5 points on swap, as the equity dropped as much as 9.5%.

Another trader saw Weatherford closing at 101.75. That trader also saw Chesapeake Energy Corp.’s 5.5% convertible notes due 2026 softening to 91.75.

“But they were lower with the stocks earlier,” he noted.

For its part, Weatherford’s stock traded down 34 cents, or 6.95%, to $4.49, hitting a new 52-week low. Chesapeake’s equity was down 15 cents, or 2.72%, at $5.36.

The names, as well as the energy space at large, was trending lower amid ongoing concerns about OPEC’s plan to cut production levels. But doubts that a deal could be reached at the cartel’s upcoming Nov. 30 meeting have begun to weigh on the sector.

Also playing a role was a pipeline explosion in Alabama. The Colonial Pipeline Co.’s main gas pipeline to the East Coast blew up on Monday, killing one and injuring as many as five. The company closed the pipeline, which sent gasoline prices higher.

The company later said it had opened another pipeline while the main artery was fixed.

However, it was the second closure in as many months for the pipeline. The last one, which occurred in September, resulted in a 12-day closure.

Macquarie trades actively

Macquarie Infrastructure Corp.’s 2% convertible notes due 2023 were trading actively in the wake of the company’s third-quarter earnings release on Monday.

A trader pegged the issue in a 101 to 101.5 context.

“The stock outyields the bond,” the trader remarked. “You get a negative return against the equity and you are paying for that.”

“Names like this defeat the whole purpose of convertible bonds,” he lamented.

As for the equity, it was up $1.74, or 2.13%, at $83.55.

For the quarter, the New York-based investment firm reported a profit of $42 million, or 51 cents per share.

Revenue was $420.5 million.

Mentioned in this article:

Chesapeake Energy Corp. NYSE: CHK

Macquarie Infrastructure Corp. NYSE: MIC

Weatherford International plc NYSE: WFT

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