Slumping oil sends energy names lower; Cobalt, Goodrich down again; LinkedIn to price

By Rebecca Melvin

New York, Nov. 4 – Convertibles of energy companies were in the crosshairs and fell in response to a tumble in oil prices on Tuesday after Saudi Arabia cut its prices for crude sold in the United States.

West Texas Intermediate crude settled down 2% at $77.20 a barrel in New York, after sinking to an intraday low of $75.84.

“Today’s really about oil; its going lower caught a lot of people by surprise, and names in energy and the E&P sector are really getting hit hard,” a New York-based trader said.

Cobalt International Energy Inc.’s two convertible bonds bore the brunt of selling in the space and slid to 70 and below, from the mid to upper 70s on Monday.

Goodrich Petroleum Corp.’s 5% convertibles due 2019 also slid about 7 points to 75.

In addition, both of these Houston-based energy and gas companies reported disappointing quarterly earnings on Tuesday.

Chesapeake Energy Corp.’s convertibles were also mentioned in trade, and pieces of other energy convertibles also traded down especially among exploration and production companies, a New York-based trader said.

Elsewhere, Newmont Mining Corp.’s 1.625% convertibles due 2017 also traded actively, a New York-based trader said, and they were seen down 0.5 point to 100.5, according to Trace data. Prices of many gold companies have sunk to levels not seen since the end of 2008.

Priceline Group Inc.’s convertibles also fell outright on Tuesday as shares of the Norwalk, Conn.-based online travel company dropped after it posted positive earnings but disappointed investors with its current quarter earnings guidance.

Priceline said it expects to earn $9.40 to $10.10 per share for the quarter, which was below the $10.91 per share expected.

Shares of Herbalife Ltd. also tanked on Tuesday after the company’s disappointing earnings release late Monday. Herbalife’s 2% convertibles were last seen at 77.75 bid, 78.75 offered, according to a New York-based trader. But this name – despite its large issue size – sees limited trading action due to its difficult stock borrow, sources said.

Shares of the Cayman Islands-based nutrition supplements company careened down $11.64, or 21%, to $44.26.

Regeneron Pharmaceuticals Inc. was in focus after the Tarrytown, N.Y.-based biotechnology company cut its full-year sales forecast for its Eylea macular degeneration drug.

But American Realty Capital Properties Inc.’s 3% convertibles bounced back a bit to the 87 to 88 level, amid no particular news and following swift and sharp selling on Monday that left the American Realty 3.75% convertibles down to 84. The move on Monday and last week was a bit overdone, a trader said.

Meanwhile, the energy shocks that have hit the markets in mid-October and currently, in addition to other blowups along the way, have taken a toll on the convertibles space in the last month and a half, and among the casualties are an East Coast-based buyside firm that has cut its convertibles personnel, and William Blair, which has shut its Chicago-based convertibles trading desk, which had been based in Chicago.

“The idiosyncratic risk has been tremendous,” a New York-based trader said of the convertibles market, and citing the energy shocks as well as the Chapter 11 bankruptcy filing of GT Advanced Technologies Inc., as events that “caused a lot of pain.”

“It seems like every other week there has been some other big blow up,” he said. “And on top of that you had the market repricing in September and October.”

“A lot of people got hurt,” the trader said.

After the market close, LinkedIn Corp. launched an offering of $1.5 billion of five-year convertible senior notes that was seen pricing after the market close on Wednesday. The issue was talked to yield 0% to 0.5% with an initial conversion premium of 40% to 45%.

Cobalt slumps with lower oil

Cobalt’s 2.625% convertibles due 2019 fell into the upper 60s and were last seen at 67.5, according to Trace data, which was down from 74.50 to 74.75 on Monday.

Cobalt’s 3.125% convertibles due 2024 traded a little higher at 71.5 bid, 71.75 offered, which was down from 78 to 78.5 offered in the previous session. Shares were down to $9.80 at that point.

“That’s down about 7.5 points” on the day, the trader said. The bonds still trade on swap to a degree, the trader said.

Cobalt shares ended off their lows, but were still down $1.31, or 11.5%, at $10.14.

In addition to the slide in oil – the Tuesday settlement for West Texas Intermediate was the lowest in three years – the Houston-based oil and gas company reported a loss of $142.5 million, or 35 cents per share, for its third quarter.

The loss included $55 million of impairment costs that are mostly associated with the Loenga well drilled offshore Angola, and the previously announced well in the Gulf of Mexico.

Adjusted for the impairment costs, Cobalt lost 21 cents in the third quarter, which was greater than the loss that many analysts expected.

Priceline down after earnings

Priceline’s newer 0.9% convertibles due 2021 were seen at 93.25 bid, 93.75 offered with the underlying shares down at $10.90. The bond was also quoted at 93.5 bid, 94 offered late in the session.

The Priceline 1% convertibles due 2018 traded down 8.125 points to 130.625, according to Trace data.

And Priceline’s 0.35% convertibles due 2020 traded at 110.2, which was down 4.425 points.

Priceline shares fell $100.82, or 8.4%, to $1,097.70.

“The stock got hammered,” a New York-based convertibles trader said.

In addition to its lowered earnings outlook for the fourth quarter, the company said revenue growth was expected to be lower than last year, and it cited economic uncertainty especially in Europe for its weaker outlook.

Net income for the quarter was $1.06 billion, or $20.03 per share, in the third quarter. Excluding one-time items, the company earned $22.16 per share on $2.84 billion of revenue.

LinkedIn to price

Mountain View, Calif.-based LinkedIn is a business-oriented social networking service. Its $1.5 billion of five-year convertibles were expected to be used for general corporate purposes and to pay the net cost of a call spread.

Coupon talk was 0% to 0.5%, and premium talk was 40% to 45%.

The Rule 144A deal has a greenshoe of $172.5 million and is being sold via joint bookrunners Goldman Sachs & Co., J.P, Morgan Securities LLC and Morgan Stanley & Co. LLC. Allen & Co. is a co-manager.

The notes are non-callable with no puts. There is takeover and dividend protection.

Mentioned in this article:

American Realty Capital Properties Inc. Nasdaq: ARCP

Chesapeake Energy Corp. NYSE: CHK

Cobalt International Energy Inc. NYSE: CIE

Goodrich Petroleum Corp. NYSE: GDP

Herbalife Ltd. NYSE: HLF

Newmont Mining Corp. NYSE: NEM

LinkedIn Corp. Nasdaq: LNKD

Priceline Group Inc. NasdaqL PCLN

Regeneron Pharmaceuticals Inc. Nasdaq: REGN

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