Energy convertibles gain with oil; Restoration Hardware firms; WebMD up on sale news

By Stephanie N. Rotondo

Seattle, March 29 – A convertible bond trader said energy-linked issues and Restoration Hardware Holdings Inc. were notable in Wednesday trading.

In the energy space, “you pick it, it’s up,” the trader commented, as oil prices improved over 2%, edging closer to the $50 threshold. Crude prices were gaining due in part to disruptions in Libya – armed protestors were blocking fields, dampening production – and in part to chatter that OPEC will extend its output cuts.

As a result, names like Chesapeake Energy Corp. and Cobalt International Energy Inc. were pushing upward.

Chesapeake’s 5.5% convertible notes due 2026 were called over 4 points higher on the day by one market source. The source placed the issue around 102.

The paper was seen trading at or above par at mid-morning, which compared to previous trades with a 97 handle.

The underlying equity was also better, rising 42 cents, or 7.79%, to $5.81.

As for Cobalt, its 2.625% convertible notes due 2019 finished about 3.5 points better on the day, closing with a 28 handle.

Cobalt’s shares improved 6 cents, or 13.23%, to 48 cents.

Restoration Hardware’s 0% convertible notes due 2019 and 2020 were meantime gaining ground following the company’s earnings beat.

As for Tesla Inc., the Palo Alto, Calif.-based car maker’s convertibles were “taking a breather,” a trader said, following the 3- to 4-point gain seen on Tuesday after it was reported that Chinese technology company Tencent had taken a 5% stake in the company.

The trader said the convertibles were about unchanged in midweek trading. The equity was initially slightly higher but finished a touch softer.

Restoration Hardware beats

Better-than-expected earnings helped Restoration Hardware’s convertible bonds put on 3 to 4 points in midweek trading.

The 2019 maturity was pegged at 89.25 bid, 89.75 offered. The issue was in an 89.25 to 89.5 context at mid-morning. Last week, the paper was trading around 87.25.

The 2020 convertibles closed in an 83.5 to 84.25 context, versus 79.5 previously.

The company’s shares put on $5.68, or 14.95%, to end at $43.68.

The Corte Madera, Calif.-based upscale home goods retailer reported its fiscal fourth-quarter results late Tuesday, showing earnings per share of 68 cents on revenue of $586.7 million.

Analysts polled by FactSet had expected EPS of 66 cents on revenue of $584.2 million.

The company also provided optimistic guidance for the current fiscal year, forecasting EPS of $1.78 to $2.19, on revenue of $2.3 billion to $2.4 billion.

Analysts are predicting full-year EPS of $1.94 on revenue of $2.33 billion.

WebMD for sale

WebMD Health Corp.’s convertibles were heading higher on Wednesday, after reports came out in the afternoon that the company was looking to sell itself off.

A market source saw the 1.5% convertible notes due 2020 ticking up nearly 6 points to 120.25. The 2.5% convertible notes due 2018 were deemed up about 2.5 points, trading at 104.125.

As for the underlying stock, it jumped $3.56, or 7.09%, to $53.79.

In February, the New York-based online medical site said it was reviewing its strategic options, including a possible sale.

J.P. Morgan Securities LLC was acting as financial adviser to the company. Shearman & Sterling LLP is acting as legal adviser.

The company’s announcement of the strategic review came in connection with its fourth-quarter and full-year results. In the earnings announcement, the company also offered guidance for the current year, which projected growth that was less than expected.

Waiting for Carbonite

Carbonite Inc. was expected to price $125 million of convertible senior notes due 2022 in a Rule 144A offering after the market closed on Wednesday.

However, details of the deal were not available as of 6 p.m. ET.

Price talk is for a yield of 2.25% to 2.75% with an initial conversion premium of 30% to 35%.

Ahead of pricing, the company’s stock was down 20 cents, or 1.02%, to $19.50.

Barclays is the bookrunner.

The deal will include an $18.75 million greenshoe.

Conversions will be settled in cash, stock or a combination of the two.

The convertibles will be provisionally callable after three years if the stock hits a 130% price hurdle.

About $40 million of the proceeds will be used to repay all amounts outstanding under a revolving credit facility. Another $20 million will be used for common stock repurchases privately negotiated with purchasers of the new debt. Any remaining funds will be used for general corporate purposes, including potential acquisitions.

Carbonite is a Boston-based provider of cloud and hybrid data protection solutions for small and midsized businesses.

Mentioned in this article:

Carbonite Inc. Nasdaq: CARB

Chesapeake Energy Corp. NYSE: CHK

Cobalt International Energy Inc. NYSE: CIE

Restoration Hardware Holdings Inc. NYSE: RH

WebMD Health Corp. Nasdaq: WBMD

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