Equity-sensitive convertibles in focus; FireEye trades on earnings; Cobalt retreats

By Abigail W. Adams

Portland, Me., Feb. 9 – The markets closed out a tumultuous week on Friday with the Dow Jones industrial average and S&P 500 experiencing their largest weekly decline in two years.

It has taken awhile for the tumult to catch up with individual names in the convertibles space, a market source said. “Things have been all over the place. It’s tough to say where things will end up.”

When things settle in, people will be readjusting their portfolios to find out where they want to be, the source said.

Equity-sensitive tech names remained in focus with Tesla Inc.’s 1.25% convertible notes due 2021 and Microchip Technology Inc.’s 1.625% convertible notes due 2027 active throughout Friday’s session.

Micron Technology Inc.’s 3% convertible notes due 2043 also saw some activity on Friday.

FireEye Inc.’s 1% convertible notes and 1.625% convertible notes due 2035 saw some action on Friday after the Milpitas, Calif.-based cybersecurity company released its fourth-quarter and year-end earnings report after the market close Thursday.

While the company’s stock soared on its earnings, it had little impact on the convertible note.

Some people were using the earnings report as an opportunity to take their money off the table, a market source said.

After climbing to heights of 37 in late January, Cobalt International Energy Inc.’s 3.125% convertible notes due 2024 and 2.625% convertible notes due 2019 returned to the mid-20s on Friday as optimism surrounding the potential payout from the bankrupt company dissipates.

Equity sensitive

The volatility in the equity markets and the release of earnings reports has pushed equity-sensitive tech names into the spotlight.

Microchip’s 1.625% notes due 2027 remained active and traded in a range of 105 to 108 before closing the day at 106, about flush with Thursday’s close. Microchip stock closed Friday at $81.04, an increase of 1.43%.

Microchip’s convertible notes have been active since the company released its third-quarter earnings report after the market close on Tuesday. The notes declined alongside the semiconductor company’s stock since earnings were released.

A two-day, 11-point slide brought Microchip’s 1.625% notes due 2027 to 106.

Tesla’s 1.25% convertible notes due 2021 saw some swings in trading prices as the company’s stock had another volatile session. The 1.25% notes traded in a range of 104 to 108 before ending the session at 107.

Tesla’s 2.375% convertible notes due 2022 dropped to as low as 111 before closing Friday north of 114. The notes were previously in the 120 range.

Tesla stock closed Friday at $310.42, a decrease of 1.53%, after swinging between a low of $294.76 and a high of $320.9845.

Tesla has seen renewed attention since releasing its fourth-quarter earnings report after the market close Wednesday.

Micron’s 3% convertible notes also saw some price swings, trading to a low of 135 and a high of 144 before closing the day at 139, about flush with Thursday’s close, according to Trace data.

Micron stock closed Friday at $40.41, an increase of 1.02%.

FireEye’s earnings

FireEye’s struggling 1% convertible and 1.625% convertible notes due 2035 saw some action on Friday after the company released its fourth-quarter and year-end earnings report after the market close Thursday.

The 1% notes solidified around 94 with trades tempering after some activity in the morning. The 1.625% notes remained active throughout the session with trades in the 91 to 92 range.

While FireEye stock soared in response to the earnings, there was little change in the trading price of the company’s convertible notes, which are both well out of the money.

“Some guys were taking money off the table on the bounce,” a market source said.

FireEye stock soared to close Friday at $15.44, an increase of 9.35%. FireEye beat its fourth-quarter guidance for revenue and non-GAAP earnings per share with fourth-quarter revenue of $202.3 million and earnings per share of 1 cent.

Revenue was $751.1 million and non-GAAP earnings per share was a net loss of 16 cents in 2017, according to a company news release. FireEye expects revenue of $192 million to $197 million and a non-GAAP net loss per share of 3 cents to 6 cents in the first-quarter of 2018.

However, FireEye stock was $45.01 when it priced its convertible notes in 2015.

Cobalt retreats

After trading to a high of 37 in late January, Cobalt’s 2.625% and 3.125% notes have steadily traded downward with both returning to the 25 range during active trading on Friday.

The notes have seen spurts of trading activity since the Houston-based petroleum exploration and production company filed for Chapter 11 bankruptcy on Dec. 14 after missing coupon payments on both notes.

Both notes were trading in the 11 to 12 range when the company filed for bankruptcy but jumped 20 points in late December after a $500 million settlement for its interests in Angola was announced.

With Cobalt’s prime piece of real estate in the Permian basin, there was optimism about the pay-out noteholders would receive in the distribution of assets. As the disclosure statement hearing scheduled for Feb. 22 approaches, the optimism is wavering.

Mentioned in this article

Cobalt International Energy Inc. OTCMKTS: CIEIQ

FireEye Inc. Nasdaq: FEYE

Microchip Technology Inc. Nasdaq: MCHP

Micron Technology Inc. Nasdaq: MU

Tesla Inc. Nasdaq: TSLA

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