OPEC concerns pressure crude prices, energy-linked convertibles; AMD firms; primary eyed

By Stephanie N. Rotondo

Seattle, Nov. 29 – Convertible energy bonds were weakening on Tuesday as increasing concerns about a production cut agreement from OPEC pressured crude oil prices.

Domestic crude dropped as much as 4% in early trading on talk that Iran and Iraq are pushing back against a deal and Russia – a non-OPEC producer that had previously been in talks with the cartel – said it would not attend the discussions this week.

In response, Chesapeake Energy Corp.’s 5.5% convertible notes due 2026 initially dipped to 97.775 bid, 98.295 offered, according to a market source. The paper ended straddling 99, which compared to previous levels with a 102 handle.

Weatherford International Ltd.’s 5.875% exchangeable senior notes due 2021 were also softer, opening with a 99 handle and then trading down to 98.75. Like Chesapeake, the paper ended closer to par.

On Monday, the Weatherford exchangeables were trading at 102.75.

As for the equity underlying the issues, Chesapeake’s stock traded all the way down to $6.03 but ultimately finished 3 cents higher at $6.37. Weatherford’s shares declined 25 cents, or 5.47%, to $4.32.

Away from energy, Advanced Micro Devices Inc.’s 2.125% convertible notes due 2026 were up about a point outright in early dealings and up 2 to 3 points by the bell.

The convertibles were pegged in a 131 to 132 context at the end of the day.

A market source quoted the issue at 130.5 bid, 131.75 offered at mid-morning.

The stock was similarly higher, adding a dime, or 1.13%, to close at $8.93.

New issues in the market

Newpark Resources Inc. was expected to bring a new convertible senior notes issue on Tuesday.

As of press time, however, the deal had not yet priced.

Ahead of pricing, a trader said he had yet to see any gray markets for the issue.

However, he noted that there was “a lot of demand for paper out there.”

Newpark’s stock weakened prior to pricing, closing off 95 cents, or 12.67%, at $6.55.

The deal was originally slated to be $100 million, but buzz is that it was upsized to $150 million.

The notes are convertible upon maturity – June 1, 2021 – or in certain circumstances prior to that date. Upon conversion, the company can settle in cash, shares or a combination thereof.

Proceeds will be used to retire existing debt and for general corporate purposes.

Investors can also look forward to Evolent Health Inc.’s proposed $110 million offering of five-year convertible senior notes.

The convertible bonds will be sold via a Rule 144A offering.

The debt is convertible into class A common stock.

Proceeds will be loaned to the operating subsidiary, Evolent Health LLC. The unit will use the funds for working capital and other general corporate purposes.

The equity linked to the debt traded off $1.45, or 7.14%, to $8.85.

Emergent in retreat

A trader said investors have “been walking [Emergent Capital Inc.’s 8.5% convertible notes due 2019] down,” as the stock has been plunging.

The trader saw the convertibles at 72.5, which compared to trades around 81 previously.

Another market source deemed the bonds at 72.25, a loss of nearly 13 points outright on the day.

As for the equity, it dipped 13 cents, or 9.09%, to $1.30.

“They have been trying to sell this company, and it looks to me like it’s never going to happen,” a trader said.

The Boca Raton, Fla.-based specialty finance company said back in August that it was looking into its strategic options, including a possible sale. In the company’s latest earnings conference call on Nov. 7, Tony Mitchell, chief executive officer, said that process was ongoing and that once a deal was in the works, it would address it in another conference call.

However, the company declined to discuss it during the earnings call.

Emergent posted a loss of $8.5 million for the third quarter. That came to a loss of 31 cents per share.

Revenue was $4.8 million.

Mentioned in this article:

Advanced Micro Devices Inc. Nasdaq: AMD

Chesapeake Energy Corp. NYSE: CHK

Emergent Capital Inc. NYSE: EMG

Evolent Health Inc. NYSE: EVH

Newpark Resources Inc. NYSE: NR

Weatherford International Ltd. NYSE: WFT

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