Convertibles activity quiet; Tesla firm; Yahoo! convertibles weaken; Chesapeake Energy bid

By Rebecca Melvin

New York, Aug. 14 – U.S. convertibles traded quietly on Friday as equities wavered, closing up at their session highs but lower for the week, market sources said.

“It’s very anemic today, with Trace volume at about $66 million, which is concerning,” a New York-based sellsider said early Friday.

Trading volume is generally light in the middle of August, and new issuance essentially dries up with many market players away for vacation. But there is an expectation that convertibles action will pick up markedly after the Labor Day holiday, which is still three weeks away.

“I am hearing a decent pipeline,” a New York-based trader said, regarding new issuance.

The quarter so far has been abysmal in terms of new issuance, with only $1.09 billion in six deals priced since June 30, compared with $5.82 billion in 16 deals for the same period last year, according to Prospect News data.

Up until the end of June, issuance had been running at the same pace as 2014, but it now lags the same period last year by 15%.

Back in established issues, there were some catalysts for trade seen on the horizon for next week, given a smattering of quarterly results that are on tap.

Trina Solar Ltd., Dick’s Sporting Goods Inc., Photronics Inc., Canadian Solar Inc. and SINA Corp. are expected to report earnings on Tuesday; and JinkoSolar Holding Co. Ltd., Tech Data Corp., Mentor Graphics Corp., Accuray Inc., Salesforce.com Inc., and New World Resources plc are expected to report results on Thursday.

Of names that were seen in trade on Friday, Tesla Motors Inc.’s 0.25% convertibles, or the A tranche, remained firm on the heels of the electric carmaker’s stock offering announcement earlier this week. The share issue was upsized on Friday to about $650 million in size from about $500 million.

It’s “traded up about 40 cents in two days,” the sellsider said of the Tesla A convertibles.

Elsewhere, Yahoo! Inc.’s 0% convertibles traded a little weaker and were close to par amid some selling pressure from European investors, the sellsider said.

Post Holdings Inc.’s convertibles were up with the common shares of the St. Louis-based breakfast cereal maker. The Post mandatories were indicated up at 127 from 118 previously. The Post 2.5% convertibles were seen in the neighborhood of 125 compared to 117.6 previously, and the Post 3.75% convertibles were at nearly 142 from 135.

Post priced $1.2 billion of high-yield, straight notes this past week in a two-part offering of 8% notes due 2025 and 7.75% notes due 2024. Both issues traded up over 102 in the market after $800 million of the 8.5-year notes and $400 million of the 10 years priced, each at par, on Wednesday.

William Lyon Homes Inc.’s 6.5% mandatories traded down about 7 points to 119 from 126 on Friday on lower common shares after the Newport Beach, Calif.-based homebuilder announced a secondary offering of common stock by selling shareholders affiliated with Luxor Capital. William Lyon’s shares closed down $1.33, or 5.3% at $23.83.

This past week, Chesapeake Energy Corp. was said to have been a feature of trade as was Micron Technology Inc.

“There were buyers of Chesapeake across the capital structure,” a New York-based trader said.

The Chesapeake 2.25% convertibles were last around 78 bid, 79 offered; the Chesapeake 2.5% convertibles were last at 88 bid, 89 offered, and the 2.75% convertibles were about 98.75 bid, 99.25 offered, a New York-based trader said.

Chesapeake’s common shares closed little changed, or down a penny at $7.49 on Friday. That was down from an intraday high of $8.86 on Monday, when the Chesapeake shares were at their highest point for the week.

“There were guys fishing around in these. From a price standpoint they are up on the high end of the yield curve. It’s interesting to see what guys are paying for paper, maybe because they are starved for yield,” the New York-based trader said. “I just don’t think it is justified from a risk/reward standpoint.”

Also a feature of the week’s trade was Micron. The Micron 3% convertibles due 2043 traded down more than a point on Friday to 90, with shares of the Boise, Idaho-based chipmaker, which has received a buyout offer from China’s Tsinghua Unigroup Ltd., last down 12 cents, or 0.7%, at $17.57.

Mentioned in this article:

Chesapeake Energy Corp. NYSE: CHK

Micron Technology Inc. NYSE: MU

Post Holdings Inc. Nasdaq: POST

Tesla Motors Inc. Nasdaq: TSLA

Yahoo! Inc. Nasdaq: YHOO

William Lyon Homes Inc. NYSE: WLH

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