Convertibles firm up: SunPower, Chesapeake notch gains; planned Monster deal looks cheap

By Rebecca Melvin

New York, Oct. 16 – U.S. convertibles were firmer on Thursday, as losses in equities were stanched, Treasuries were weaker and the high-yield bond market turned around, marking a shift of tone from the previous few sessions.

“There was an underlying better tone to the market as high yield snapped back and the rest of the convert market followed suit,” a New York-based trader said.

Credit convertibles mostly improved, the trader said.

SunPower Corp.'s convertibles were better by about 0.5 point, the trader said.

Elsewhere, the Chesapeake Energy Corp. convertibles complex was active as shares in the Oklahoma City-based energy company surged 17% on news that the company is selling a portfolio of gas and oil wells to Southwestern Energy Co., a move that will put a serious dent in Chesapeake’s debt load.

In the primary market, some market players were sizing up Monster Worldwide Inc.’s planned $125 million of five-year convertible senior notes that were set to price after the market close.

The deal was looking cheap by about 2.5 points at the midpoint of 3% to 3.5% coupon talk and 37.5% to 42.5% premium talk, according to a Connecticut-based trader, who was using a credit spread of 600 basis points over Libor and 35% vol.

The trader said that the company’s online employment services business has seen revenue and EBITDA move lower every year since 2011, however. “This is a dying business,” he said.

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