Microchip turns around in tandem with underlying shares as broader market reverses course

By Rebecca Melvin

New York, Feb. 24 – Microchip Technology Inc. remained a notable name in convertible trading on Friday, with three sister issues of the Chandler, Ariz.-based semiconductor company ending the session flat to slightly better on an outright basis, after moving initially lower in tandem with the common shares underlying the paper. The moves mirrored those of the broader stock markets, which traded down for much of the session before retracing those losses in a rally heading into the market close.

The S&P 500 stock index closed up by 3.53 points, or 0.2%, to 2,367.34. The index had been down by about 0.5% shortly after the market open.

Convertible traders kept a pretty low profile during the session, which capped off a rather slow week that was a day shorter than normal due to the Presidents Day holiday on Monday.

Energy names were weak throughout the session as oil oversupply concerns pushed those prices down. U.S. crude oil for April delivery fell 46 cents, or 0.8%, to $53.99 a barrel on the New York Mercantile Exchange.

For the week ended Feb. 17, crude oil inventories stood higher by 0.6 million barrels from the previous week to 518.7 million barrels, which is 9% higher than the level for the same week a year earlier, according to U.S. Energy Information Administration data published on Thursday.

Southwestern Energy Co.’s 6.25% mandatory preferreds ended at session lows, down $2.08, or 10%, to $18.88 in volume that exceeded the 65-day average. That slightly outperformed the common shares, however, which ended down $1.00, or 12%, to $7.35.

Chesapeake Energy Corp. also remained under some pressure. The Chesapeake common shares slipped another 9 cents, or 1.6%, to $5.66, and the Chesapeake 5.5% convertibles due 2026 stand around par, having come off about 2 points in the past two days in line with shares.

Both Southwestern Energy and Chesapeake reported quarterly earnings this week that referenced currently challenging energy commodity market conditions. In its report, Chesapeake cited material weakness in financial controls, but revisions were not expected to be material, a New York-based trader noted.

But not everything in the convertibles energy space was trading. Cobalt International Energy Inc.’s two convertible bond issues, which are severely distressed, were quiet on Friday, according to Trace data. The shares underlying those bonds were off 1% to $0.7514.

Moving in the opposite direction on the day was Spectranetics Corp.’s 2.625% convertibles due 2034, which moved up 3.5 points to 4 points to 111.8, but not on strong volume, with shares of the Colorado Springs, Colo.-based maker of single-use medical devices adding back $1.50, or 5.7%, to $28.05 after weakness Thursday and earlier this week.

New Microchips lower

Three sister issues of Microchip ended better on Friday after trading off fractionally on an outright basis earlier in the day. The moves included $2.3 billion in two new deals that priced earlier this month. At late morning, the new Microchip 1.625% convertibles due 2027 were down 0.20 point to 100.898; the new Microchip 2.25% convertibles due 2037 were off 0.31 point at 101.143; and the old Microchip 1.625% convertibles due 2025 were off 0.13 point at 142.168.

Shares of the Chandler, Ariz.-based manufacturer of microcontroller, memory and analog semiconductors were down 10 cents, or 0.14%, at $72.61 at that time.

By the end of the day, the Microchip olds were up to 142.6.

“The [convertibles] market is still trying to dig its way out of all the paper,” a New York-based trader said of the two new Microchip deals, which were upsized from an originally talked $1.5 billion.

The deals were detrimental to holders of Microchip paper, the trader said. The Microchip 1.625% convertibles of 2025, or the “olds,” fell 2 points when the new deals priced two weeks ago, and since then they have slipped another 0.5 point, he said. The new paper “crushed the [Microchip] market.”

Mentioned in this article:

Chesapeake Energy Corp. NYSE: CHK

Cobalt International Energy Inc. NYSE: CIE

Microchip Technology Inc. Nasdaq: MCHP

Southwestern Energy Co. NYSE: SWN

Southwestern Energy Co. preferred NYSE: SWNC

Spectranetics Corp. Nasdaq: SPNC

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