Red Hat, NXP Semiconductors improve; U.S. Steel gains; Medicines, Resource Capital on tap

By Rebecca Melvin

New York, Jan. 6 – Red Hat Inc. and NXP Semiconductors NV were slightly better Tuesday as segments of the convertibles market remained the beneficiary of lower share prices resulting from turbulence created by further cratering of oil prices and macroeconomic concerns.

Red Hat’s 0.25% convertibles, which priced Oct. 1, were seen at 118.875 versus an underlying share price of $68.33 early Tuesday, a New York-based trader said.

NXP Semiconductors’ convertibles were quoted at 101.25 versus an underlying share price of $73.89, a second trader said.

United States Steel Corp. was another notable name as its convertibles were said to have gained about 1.5 points in the past two days. One trader said that the 1.5-point gain was on a hedged basis, and a second trader said it was not.

The U.S. Steel 2.75% convertibles were quoted at 119.75 bid, 120.5 offered versus an underlying share price of $25.00. The bonds trade on a delta hedge in the low 70% range.

Both outright and hedged market players were buying up convertibles that were deemed to be of decent value, a New York-based trader said.

But outright players were also absorbing the pain of lower absolute pricing, and hedged players felt the effects of a drop in rates. Nevertheless, “investment grade was much higher and well bid,” a trader said. And some players were beginning to dip their toes into the murky waters of the energy sector, which has been routed by the crude oil collapse.

On Tuesday, the price of West Texas Intermediate crude oil for February delivery fell another 4% to $48.01 per barrel, on the heels of a 5% drop on Monday.

Chesapeake Energy Corp.’s 2.5% convertibles due 2037 (Cusip: 165167BZ9) traded at about 96, which was down in tandem with lower shares. BofA Merrill Lynch downgraded Chesapeake shares to “underperform” from “neutral,” citing the Oklahoma City-based energy company’s dependence on recovery in natural gas and oil pricing.

In addition to lower oil, equities in the broader markets fell again following a sharp sell-off on Monday, and U.S. Treasury bond yields fell.

Primary market picks up

Nevertheless, the U.S. convertibles primary market stirred following its year-end holiday slumber, and two new deals launched after the market close for pricing after the market close Wednesday.

The Medicines Co. launched an offering of $300 million of seven-year convertible bonds that were talked to yield 2.5% to 3% with an initial conversion premium of 32.5% to 37.5%.

The Parsippany, N.J.-based developer of products that improve specialized care has an existing 1.375% convertible that priced in 2012. That deal was upsized and came at the midpoint of price talk via J.P. Morgan Securities LLC, BofA Merrill Lynch and Citigroup Global Markets Inc. The new deal is being brought by joint bookrunners Goldman Sachs & Co., Citigroup and JPMorgan.

Also launching after the market close Tuesday was Resource Capital Corp. with a $100 million offering of five-year convertible senior notes that were talked to yield 7% to 7.5% with an initial conversion premium of 10% to 15%.

The registered deal was being sold via joint bookrunning managers Morgan Stanley & Co. LLC and J.P. Morgan Securities LLC.

Resource Capital has an existing 6% convertible of which a small amount traded on Tuesday at 97.75, a syndicate source said.

The New York-based specialty finance company focuses primarily on commercial real estate loans.

Tuesday’s broader market continued to be roiled by a myriad concerns, including the now strong U.S. dollar, a possible exit of Greece from the euro zone that would have implications for Spain, Italy and Portugal among others, as well as the geopolitical situation in the Ukraine, and the sudden jump in bond prices.

The yield on the 10-year Treasury bond fell to 1.94%.

The S&P 500 stock index fell 17.97 points, or 0.9%, to 2,002.61; the Dow Jones industrial average fell 130.01 points, or 0.7%, to 17,371.64; and the Nasdaq stock index dropped 59.84 points, or 1.3%, to 4,592.74.

Mentioned in this article:

Chesapeake Energy Corp. NYSE: CHK

The Medicines Co. Nasdaq: MDCO

NXP Semiconductors NV Nasdaq: NXPI

Red Hat Inc. NYSE: RHT

Resource Capital Inc. NYSE: RSO

United States Steel Corp. NYSE: X

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