Convertibles quiet to start holiday-shortened week; Whiting drops another point on swap

By Rebecca Melvin

New York, Dec. 21 – Energy convertible names were lower again on Monday amid a mostly quiet session to start the holiday-shortened week before Christmas.

Whiting Petroleum Corp.’s convertibles were weaker as the energy market continues to reel under the oversupply problem. The Whiting bonds were quoted down to 66.25 versus an underlying share price of $9.09. That was down from 68.5 to 69 in early action on Friday and a trade at 66.6 at the end of Friday.

Whiting shares fell another 78 cents, or 9%, to $8.31 on Monday.

Monday’s action represented a continuation of an ongoing trend in Whiting. The most pronounced move lower was on Thursday and Friday, while on Monday the name, which was quoted lower by 1 point to 1.5 points on swap, was “only marginally lower,” a New York-based trader said.

The Whiting bonds have lost about 7 points on swap in the last week and have lost 13 or 14 point in the last two weeks, the trader said.

All energy convertible names were lower as oil prices continued to drop. West Texas Intermediate crude oil for February delivery ended the session at $34.66 per barrel, which was down 0.2%.

“Every day oil is down and the bonds are just dropping along with it,” the trader said.

Cobalt International Energy Inc. was another name on the chopping block, with the Cobalt 2.625% convertibles changing hands at 56 bid, 57 offered.

“Those have been down a lot. But it’s across the board. These names are down 10 points to 20 points in the last month,” the trader said.

The Kinder Morgan Inc. mandatories, which represent one of the best deals of 2015, were up 2 cents at $39.32, however, versus the underlying shares that were unchanged at $15.14 at the close.

Holders of the Kinder Morgan mandatories made about 8 points on the paper on a swap basis when the oil and gas company cut its dividend by 75%.

In general there has been a gradual increase in mandatory trading in the past month or so as oil prices have cratered. The action has been from more traditional long-only stock players that hold the common and are switching into the mandatories, “more because of the stock moves than due to anything else,” the trader said.

Elsewhere things were quiet as the countdown to year-end began in earnest given two partial weeks of trading left. Most market players were only trimming and tucking with trades of only $1 million and $2 million of bonds each, a New York-based trader said.

There was some action in Ares Capital Corp. Those bonds trade right around par and are treated like a money-good money market instrument.

Mentioned in this article:

Ares Capital Corp. Nasdaq: ARCC

Cobalt International Energy Inc. NYSE: CIE

Kinder Morgan Inc. NYSE: KMI

Whiting Petroleum Corp. NYSE: WLL

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