Quiet start to holiday-shortened week; energy patch ‘feels better’; Invacare launches deal

By Rebecca Melvin

New York, Feb. 16 – U.S. convertibles were modestly better on Tuesday but not showing the same amounts of improvement as U.S. equities, which saw Friday’s rally remain intact following the long holiday weekend in observance of Presidents Day.

Energy equities were mixed, and energy convertibles hadn’t yet matched those moves, but in general the energy space felt more stable, according to several market sources.

One sellsider reported a single trade in Energy XXI Ltd.’s convertibles after word that holders of the notes may be able to put the bonds as the Houston-based oil and gas company faces the risk of having its low stock price trigger a put option under its $400 million of 3% convertible notes due 2018. Those bonds traded once at 0.75, and they were quoted 1.25 later in the day.

The pricing indicated that investors didn’t think there was any possibility those bonds would be covered.

Energy XXI on Tuesday also reported a wider-than-expected quarterly loss and said it will forgo an interest payment on EPL Oil and Gas Inc.’s 8.25% senior notes due 2018 in an effort to preserve liquidity while cutting leverage.

Chesapeake Energy Corp.’s convertibles improved about a point to 16 from 15 for the 2.25% convertibles due 2038, but in general the name was pretty static. A 17% gain in the Chesapeake common shares represented a move of only 27 cents, a New York-based sellsider noted.

Stone Energy Corp.’s convertibles traded within its current range, ending the session at 61 against shares that were lower by 6%.

Meanwhile it looked as if the complex of SunEdison Inc. convertibles was mixed with some issues registering lower despite a run up in the shares by 15% on Tuesday, leaving them up 21 cents at $1.62.

SunEdison’s 5% convertibles due 2018 traded at 63 from the mid-70s previously.

But SunEdison’s 0.25% convertibles were last at 15, which was up from 11. And SunEdison’s 6.75% convertibles were up to 134 from 121.

Meanwhile, the primary market, which has been hibernating for the most part this year, saw a new deal launched from Invacare Corp. for $130 million of convertible senior notes that were expected to price after the market close on Wednesday.

Overall, “it felt like there was a little bit more stability [in the energy sector],” a New York-based trader said of Tuesday’s session. “There was nothing that exciting going on anywhere, but it felt a little better.”

In the broader markets, the Nasdaq composite stock market gained 98.44 points, or 2.3%, to 4,435.96; the S&P 500 index gained 30.80 points, or 1.7%, to 1,895.58; and the Dow Jones industrial average moved up 222.57 points, or 1.4%, to 16,196.41.

Energy XXI investors unfazed

Energy XXI’s 3% convertibles were seen at 1.25 at the end of the session after earlier trades around 0.75 and starting the session at 0.5.

Energy XXI shares were up a bit at $0.49 per share in the early going but ended down 3.75%, at $0.4525.

The company faces the risk of having its low stock price trigger a put option under the $400 million principal amount of 3% senior convertible notes due 2018, but no one believes that it can cover the payment, and therefore, the paper remained unmoved.

At the same time, “there’s no news possible to make them go much lower,” a New York-based trader said.

Energy XXI reported a wider-than-expected quarterly loss and said it will forgo an interest payment on EPL Oil and Gas Inc.’s 8.25% senior notes due 2018.

Overall it was pretty quiet in the convertibles market, traders said.

Chesapeake was up, but Stone Energy was down. News that Saudi Arabia and Russia have talked about capping oil production at January’s levels didn’t faze traders. The oil glut was not expected to improve from the agreement.

Invacare launches deal

Invacare launched an offering of $130 million of convertible senior notes that were expected to price after the market close on Wednesday and were talked to yield 4.5% to 5% with an initial conversion premium of 25% to 30%.

The Elyria, Ohio-based maker of non-acute health care products priced a $125 million convertible bond in 2007 with a 4.125% coupon and a 22.5% initial conversion premium. Those notes came concurrently with an offering of straight notes.

The new deal was being sold via J.P. Morgan Securities LLC. It looked cheap for investors “on first blush. But that’s what it takes to get deals done these days,” a convertibles trader said.

The new notes are non-callable with no puts and will mature on Feb. 15, 2021. They have takeover protection.

In connection with the offering, the company expects to enter into privately negotiated convertible note hedge and warrant transactions, or a call spread, with one or more financial institutions.

Proceeds will be used to repurchase Invacare common shares and for the net cost of the call spread.

The stock purchases will be from purchasers of the notes in privately negotiated transactions effected through JPMorgan. The company expects the price per share of the common shares repurchased to equal the closing share price of the company’s common shares when the notes are priced.

Remaining proceeds will be for working capital and general corporate purposes, which may include funding portions of the company’s ongoing turnaround and addressing potential risks and contingencies.

Mentioned in this article:

Chesapeake Energy Corp. NYSE: CHK

EXXI Energy Ltd. Nasdaq: EXXI

Invacare Inc. NYSE: IVC

Stone Energy Corp. NYSE: SGY

SunEdison Inc. Nasdaq: SUNE

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