Tech sags after Microchip sales warning; energy names weaken further; new Anacor quiet

By Rebecca Melvin

New York, Oct. 10 – Convertibles were under pressure again on Friday, with some technology names joining those of the energy sector in a selloff, as equities slid, ending the session near their lows. The Nasdaq Stock market fell 2% on Friday and 4% for the week.

Microchip Technology Inc.’s shares and convertibles tumbled after the Chandler, Ariz.-based semiconductor maker warned revenue for its fiscal second quarter will be weaker than expected and asserted that an industry-wide correction has begun.

The warning pulled down chip names. Intel Corp.’s convertibles traded actively at pricing that was lower in line with shares that fell nearly 5%.

Elsewhere, the Priceline Group Inc. was also a notable loser.

But energy names, which began to drop earlier in the week, extended losses on Friday, with the bloodshed in that sector deemed more significant than that in tech, sources agreed.

Cobalt International Energy Inc. extended losses for a fifth straight day, and Energy XXI (Bermuda) Ltd. has tumbled hard for three sessions. Coal names including Alpha Natural Resources Inc. and Peabody Energy Corp. also remained weak.

“Everything was still weak as of this morning,” a Connecticut-based trader said Friday. “Every print is lower than the one before.”

Meanwhile, Endeavour International Corp.’s 5.5% convertibles were quiet as shares of the Houston-based oil and gas exploration and production company were halted pending news. The convertibles were seen last at about 5, a trader said.

“They haven’t traded for a while,” the trader said, calling the market on the bonds 5 bid, 7 offered.

Endeavour’s forbearance agreement was expected to expire following a couple of extensions. The agreement has to do with the company’s skipped interest payment last month on three series of bonds, including its 6.5% convertibles due November 2017, 12% first-priority notes due 2018 and 12% second-priority notes due June 2018.

“They keep extending it,” a trader said of the forbearance agreement.

In the primary market, Anacor Pharmaceuticals Inc.’s newly priced 2% convertibles were quiet Friday after the Palo Alto, Calif.-based biopharmaceutical company priced a slightly upsized $75 million of the seven-year senior notes through the rich end of coupon talk and at the rich end of premium talk.

“It seems like the deal saw strong demand and was well placed,” said a trader, who had not seen the bonds in trade early Friday after pricing.

Microchip leads tech lower

Microchip’s 2.125% convertibles due 2037 traded down more than 20 points to 155.7, according to Trace data, from about 179 on Thursday. Later the bonds were seen at 157.

Microchip shares fell $5.58, or 12%, to $39.96.

Late Thursday, Microchip warned that it expects sales for the second quarter to be lower than expected at $546.2 million, which includes about $16.0 million from the recent ISSC acquisition, compared to earlier guidance for sales of between $560 million and $575.9 million, including $18 million from the ISSC acquisition.

The expected revenue drop was attributed to weaker China sales.

The warning weighed on the whole sector, with the Philadelphia Semiconductor Index dropping 6.9%.

Intel 2.85% convertibles lost 3.6 points to 122.7, according to Trace data. Intel 3.25% convertibles due 2039 crossed the Trace tape in afternoon trade at 156.625, which was down 6.625 points on the day.

Cobalt, Energy XXI lower

Cobalt International’s 3.125% convertibles due 2024, which priced in May, dropped another couple of points to about 75 on Friday, notching a week of losses of more than 10 points. Last Friday the Cobalt convertibles traded at 86, and on Monday they were seen as high as 88.

Cobalt’s 2.625% convertibles due 2019, which priced December 2012, slumped to 72 from about 74 or 75 on Friday. The Cobalt 2.625% convertible is a $1.38 billion issue of non-callable bonds, and the 3.125% convertibles are an issue of $1.3 billion.

Shares of the Houston-based oil and gas company fell 85 cents, or 7.3%, to $10.81 on Friday, on top of a $1.03, or 8%, drop on Thursday and down 18% from a close of $13.25 a week ago.

Meanwhile, Energy XXI’s 3% convertibles due Dec. 15, 2018 traded to as low as 65 on Friday after dropping to 75 on Thursday, a Connecticut-based trader said. On Wednesday, the Energy XXI bonds were in the 80s.

Other convertible E&P names were equally as weak. “There are a host of those names,” a trader said. “The liquid names are trading lower.”

Whether the move was overdone was in question, but “nobody wants to step in,” a second New York-based trader said, regarding whether market players would turn buyers at the lower prices.

Fears of a supply glut and lower demand amid hampered global economic growth have sent oil prices plunging in recent weeks. Low per barrel oil prices discourages drilling and weighs heavily on these companies.

Reversing sharp early losses, light sweet crude futures for November delivery ended up 5 cents on Friday at $85.82 a barrel.

Mentioned in this article:

Alpha Natural Resources Inc. NYSE: ANR

Anacor Pharmaceuticals Inc. Nasdaq: ANAC

Cobalt International Energy Inc. NYSE: CIE

Endeavour International Corp. NYSE: END

Energy XXI (Bermuda) Ltd. Nasdaq: EXXI

Intel Corp. Nasdaq: INTC

Microchip Technology Inc. Nasdaq: MCHP

Peabody Energy Corp. NYSE: BTU

The Priceline Group Inc. Nasdaq: PCLN

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