Rate-sensitive convertible notes under pressure; Frontier Communications, Anadarko on tap

By Rebecca Melvin

New York, June 4 – U.S. convertibles were mixed with pockets of weakness particularly in longer-dated, rate-sensitive issues on Thursday, a New York-based trader said.

Weakness was not limited to rate sensitive names, however, as a combination of factors appeared to be pressuring the market, including the broader market tone and the fact that there has been a significant amount of new paper pricing this week and last, the trader said.

“The tone was mixed with some things definitely better for sale, but there was a certain amount of randomness to it,” the trader said.

PennyMac Mortgage Investment Trust’s 5.375% convertibles were weaker. The non-callable, exchangeable bonds due 2020 changed hands at 94.3, which was down from about 95. A second source had it marked 94.549 bid, 95.299 offered at the close.

Shares of the Calabasas, Calif.-based real estate investment trust were down about 18 cents, or nearly 1%, at $18.32.

In the primary, Frontier Communications Corp. was expected to price $1.75 billion of mandatory convertible preferred stock after the market close. That deal was talked to yield 11.125% to 11.625% with an initial conversion premium of 12.5% to 17.5% and was looking roughly fair value, sources said.

In addition, Anadarko Petroleum Corp. planned to price $325 million of tangible equity units, exchangeable into shares of its subsidiary Western Gas Equity Partners LP. That deal is talked at a 7.5% to 8% coupon and 20% to 25% premium.

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