Convertibles firm into strength of U.S. equities; Newmont drops; TimkenSteel on tap

By Rebecca Melvin

New York, May 24 – U.S. convertibles were firmer on Tuesday building on the strength of equities and credit, with the exception of gold and metals, and putting gold-mining company Newmont Mining Corp. at the top of the trading-volume chart for the day at pricing that was 2 points lower on an outright basis, a New York-based trader said.

U.S. equities notched their strongest gains in about two months as market players grappled with the idea that the U.S. Federal Reserve may soon raise interest rates again. Recent comments from Fed policy makers have pointed to a rate hike in June, which is sooner than many market players had been expecting.

The Dow Jones industrial average and the S&P 500 stock index each rose about 1%, leaving the Dow at 17,706.05 and the S&P at 2,076.06; and the Nasdaq composite index rose 2% to close at 4,861.06.

Newmont was the top volume bond, according to Trace data, and down 2 points outright, but unchanged on a dollar-neutral, or a hedged, basis, the trader said.

Newmont shares fell $2.09, or 6%, on Tuesday, rendering the bonds’ move lower about equal, or about flat, on swap on the day.

But Wright Medical Group NV’s 2.25% convertibles, which priced about two weeks ago, traded higher by about 1.5 points on an outright basis. Shares were also higher, closing up 33 cents, or 1.7%, at $19.57.

The new Wright Medical convertibles last traded up at 111.215 versus an underlying share price of $19.55, a New York-based trader said.

“The bond trading at 111 this soon after the deal is very interesting,” the trader said.

But a pair of Chesapeake Energy Corp.’s convertible bonds, which have been the epicenter of energy sector trading, remained busy and better on Tuesday. Driving that move is the fact that the company is buying back chunks of the bonds.

The Chesapeake 2.25% convertibles due 2038 traded late in the day at 71.25, which was up 4.25 points on the day.

The Chesapeake 2.5% convertibles were less busy and traded at 92.5 bid, 93.5 offered in the early going, which was up from about 91.5 to 92.5 on Monday. A late print went up at 92.5, which was up from 92.25 on Monday.

Chesapeake shares jumped 38 cents, or 10.4%, to $4.05.

Also in the energy patch, Cheniere Energy Inc. was trading well Tuesday morning. The bonds were trading around 57 amid hedge fund selling and outright buying. The pricing was in line with the underlying shares, which were down 25 cents, or 0.7% at $32.95.

Early in the session, U.S. convertibles were quiet despite higher shares as light volume and persistently low issuance has dampened the market.

“There’s a mix of activity, but it’s very quiet. People are trading around their book, but that’s about it,” a New York-based sellsider said early Tuesday.

Toll Brothers Inc.’s convertibles, which priced via Toll Brothers Finance Corp., edged up amid a jump in the underlying shares of the Horsham, Pa.-based residential home builder. The company posted an earnings beat and also better-than-expected new home sales data was released.

The Toll Brothers 0.5% exchangeable senior notes due 2032 were untraded in the early going and stood at 97.62. But they traded later in the session at 98.75, according to Trace data.

Toll Brothers shares closed up $2.36, or 8.7%, at $29.46.

For its second quarter, Toll Brothers earned $89.1 million, or 51 cents per share, on $1.12 billion in revenue for its just completed quarter. That compared to earnings of $67.9 million, or 37 cents per share, in the year-earlier period. Analysts were expecting earnings of 46 cents per share on $1.04 billion of revenue.

After the market close, TimkenSteel Corp. launched an offering of $75 million of five-year convertible senior notes for pricing ahead of the open on Wednesday. The terms talked for the deal were for a 5.5% to 6% coupon and a 20% to 25% initial conversion premium.

Shares of the Canton, Ohio-based steel products company slumped in after-hours trading action. They were seen last down $1.45, or 14%, at $9.03, after closing the day up 0.6% at $10.48.

The registered TimkenSteel deal is being sold via J.P. Morgan Securities LLC as bookrunner and Deutsche Bank Securities Inc. as co-manager. It has a greenshoe of up to $11.25 million of additional notes.

The bullet matures June 1, 2021. The issue is convertible at the option of holders under certain circumstances.

Proceeds will be used to repay a portion of the amounts outstanding under the company’s asset-based revolving credit facility.

Mentioned in this article:

Chesapeake Energy Corp. NYSE: CHK

Cheniere Energy Inc. NYSE: LNG

Newmont Mining Corp. NYSE: NEM

TimkenSteel Corp. Nasdaq: TMST

Toll Brothers Inc. NYSE: TOL

Wright Medical Group NV Nasdaq: WMGI

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