Energy-related convertible bonds gap lower; market weaker as equity, oil routs continue

By Rebecca Melvin

New York, Jan. 15 – Energy convertibles were getting clobbered again on Friday, and the rest of the market was weaker as oil prices and the U.S. and global equity markets plunged again.

Energy paper couldn’t hold in because “you can’t value their assets just now,” a New York-based trader said as to why some of those convertibles were melting down.

West Texas Intermediate crude oil for February delivery closed down $1.78, or 5.7%, to $29.42 per barrel on Friday. On Monday it had dropped 5.3% to $31.41 per barrel.

Cobalt International Energy Inc. has not held, he said, because of fear, but Restoration Hardware Holdings Inc.’s 0% convertibles due 2019 traded down in an orderly fashion, he said.

Whiting Petroleum Corp.’s 1.25% convertibles traded at 54.25 on Friday, compared to a close on Monday at 62. Shares of the Denver-based oil and gas exploration and production company fell 15% on Friday to a close of about $5.70. On Monday the shares closed down 6.3% to $7.28.

Chesapeake Energy Corp. shares fell 24% this past week. The convertibles of the Oklahoma City-based oil and natural gas company were last seen around the 50 mark.

A smaller name, Hornbeck Offshore Services Inc. saw its 1.5% convertible slide below 50. It traded on Friday at 47, compared to 50.75 a week ago. Shares of the Covington, La.-based provider of offshore supply vessels fell 50 cents, or 6%, to $7.28 on Friday compared to a 60 cent, or 7%, drop to $7.80 on Monday.

Energy convertible mandatory issues traded down with their underlying common shares. The Kinder Morgan Inc. mandatories fell to $37.95 on Friday against Kinder Morgan common stock at $13.07. That compared to a Kinder Morgan mandatory close on Monday at $39.43 versus common shares at $14.16.

Southwestern Energy Co., which priced $1.5 billion of the mandatory convertible preferred stock in mid-January last year, saw that paper drop to $15.87 against a stock price of $6.31. That compared to the mandatory at $16.98 at the end of Monday against the Southwestern common stock that dropped 41 cents, or 6%, to $6.54.

WPX Energy Inc.’s convertible mandatory was down another $1.00, or 4%, on Friday to $23.94 with the underlying shares at $4.32. On Monday the mandatory was down $1.20, or 4%, to $27.92, while the common stock of WPX Energy lost 28 cents to $4.97.

Elsewhere, Intel Corp.’s bonds fell in tandem with the common stock underlying the bonds despite the fact that the Santa Clara, Calif.-based chip giant handily beat earnings estimates.

Investors were said to be disappointed by Intel’s fourth-quarter results posted late Thursday. The results revealed unimpressive growth in its data sector segment, which is the company’s growth area related to cloud computing. In addition, margins were low and guidance was soft.

Intel’s 2.95% convertibles due 2035 traded down about 4 points to about 120.

Intel’s 3.25% convertibles due 2039 dropped to about 148 from 160.

Shares were down 9.1%, or $2.98, at $29.76.

Equities were abysmal but it was not the only asset class reacting on Friday. Ten-year Treasuries gained, sending yields down to about 2%, which was near three-month lows. There was a gold safety bid, and the CBOE volatility index jumped about 14% to 28.

Part of the pressure on the markets may have been related to the fact that the market players were trying to reduce risk ahead of the three-day holiday weekend. Financial markets are closed on Monday in observance of Martin Luther King Jr. Day.

In equities, the Nasdaq stock market plunged 126.59 points, or 2.7%, to 4,488.42, the Dow Jones industrial average sank 390.97 points, or 2.4%, to 15,988.08 and the S&P 500 stock index fell 41.55 points, or 2.2%, to 1,880.29.

Mentioned in this article:

Chesapeake Energy Corp. NYSE: CHK

Cobalt International Energy, Inc. NYSE: CIE

Hornbeck Offshore Services Inc. NYSE: HOS

Intel Corp. Nasdaq: INTC

Kinder Morgan Inc. NYSE: KMI

Restoration Hardware Holdings Inc. NYSE: RH

Southwestern Energy Inc. NYSE: SWN

Whiting Petroleum Corp. NYSE: WLL

WPX Energy Inc. NYSE: WPX

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.