Egalet exchanges convertibles; Micron surges on results; Cobalt trades ‘a little crazy’

By Abigail W. Adams

Portland, Me., Dec. 20 – The U.S. tax bill is on its way to president Donald Trump after both Senate and House approval on Wednesday. Some market sources are hopeful the bill will be the catalyst for the new issuance the convertible market has been waiting for.

With help from the tax bill, sources are pegging new issuance in 2018 to be between $45 billion and $68 billion – an increase from the year-to-date issuance of $35.80 billion in 2017.

While many sources said they were holding out hope for the increase, many were also skeptical.

The new deals look to be done with both primary and secondary activity winding down in the run up to the holidays.

However, Egalet Corp. issued $23.9 million in seven-year convertible notes to yield 6.5% with an initial conversion premium of 15% in an exchange transaction announced prior to the market open Wednesday.

It is doubtful the new notes will trade, a market source said.

Cobalt International Energy’s 3.125% convertible notes due 2024 and 2.625% convertible notes due 2019 were in focus during Wednesday’s session after the company reached a settlement on its Angola property.

Both notes were trading in the 11 to 12 range when the company filed for Chapter 11 bankruptcy on Dec. 14 but jumped 20 points after the settlement news.

Micron Technology Inc.’s 3% convertible notes due 2043 were in focus after the company released a stronger-than-expected first-quarter earnings report after the market close on Tuesday. The notes were trading up to their previous level before the company got caught in the late November sell-off of semiconductor stocks.

Egalet’s exchange

Egalet issued $23.9 million in 6.5% convertible notes due 2024 in an exchange agreement with holders of $36.4 million of Egalet’s 5.5% convertible notes due 2020.

The new notes carry a higher coupon and a drastically reduced conversion price of $1.33 a share, versus the $14.87 conversion price on the 5.5% notes.

Egalet is also issuing a warrant for 3.5 million shares in the exchange.

The company still needs stockholder approval. If stockholders reject the new shares to be issued on the conversion of the 6.5% notes, the coupon will increase to 10%, Prospect News reported.

“It’s definitely on the tape and it’s happening, but I don’t know if the new notes will trade,” a market source said.

The 5.5% notes from the specialty pharmaceutical company specializing in abuse-resistant pain medication were stagnant in the market. There were some “odd-lot trades” of the notes in the mid-40s, but they generally were at 50 bid, 55 offered, a market source said.

“But they never traded,” the source said. “It was hard to find offers.”

The company’s stock tanked on Wednesday with the stock at $1.02, a decrease of 11.85%.

Crazy for Cobalt

On a slow day with only $255 million in trades by late afternoon, there was a frenzy of activity surrounding Cobalt’s 3.125% convertible notes due 2024 and 2.625% convertible notes due 2019. The activity sent both notes soaring.

The 3.125% and 2.625% notes from the Houston-based petroleum exploration and production company were both in the 11 to 12 range in the run up to Wednesday’s session.

“There was a lot of active trading. People got a little crazy and were buying them for 30,” a market source said. Both notes simmered later in the afternoon to solidify around 25, the source said.

The embattled company filed for bankruptcy on Dec. 14 after missing coupon payments on both notes.

Cobalt announced Wednesday that it had reached a settlement with Sonangol, which oversees petroleum and natural gas production in Angola, over disputed property. In exchange for Cobalt’s transferring of interest in the property off the coast of Angola, Sonangol will pay Cobalt $500 million.

The settlement was good news for holders of the notes, a market source said. “The prime property is the Gulf of Mexico,” the source said. “People are waiting on that now.”

The property off the coast of Angola and the Gulf of Mexico are Cobalt’s two main assets. When the Gulf of Mexico property is settled, holders of Cobalt’s debt will have a better understanding of what they will get from the bankruptcy.

Cobalt’s stock was delisted from the NYSE after the market close Dec. 13.

Micron’s back

Micron’s 3% convertible notes due 2043 were returning to their former glory during active trading on Wednesday after the company released its first-quarter earnings.

The notes were trading in a range of 157.717 to 161.386 before closing the day at 160.7, according to Trace data.

The notes were trading in the 160 range before the late November sell-off of semiconductor stock. The equity-sensitive notes climbed alongside their stock, which closed Wednesday’s session at $45.75, an increase of 4.02%.

Micron’s 3% notes and stock tumbled in late November after a Morgan Stanley report questioned the earnings potential of memory chipmakers in 2018 with NAND flash memory chip prices expected to fall.

The Boise, Idaho-based memory chip maker reported an adjusted EPS of $2.45 a share in its first-quarter earnings report, which beat analyst expectations for an adjusted EPS of $2.20.

Micron is expecting an adjusted EPS of $2.58 per share for the second quarter on sales of $7 billion, which is at the midpoint of its guidance. Analysts had been anticipating $1.95 a share on sales of $6.08 billion.

Mentioned in this article:

Cobalt International Energy OTCMKTS: CIEIQ

Egalet Corp. Nasdaq: EGLT

Micron Technology Inc. Nasdaq: MU

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