Hess mandatory trades around par; LinkedIn falls but not as badly as shares; Workday drops

By Rebecca Melvin

New York, Feb. 5 – Hess Corp.’s newly priced 8% mandatory convertible opened below par but improved in trading on Friday after the New York-based oil and gas producer priced $500 million of the preferred shares at the cheap end of talked terms, market sources said.

The Hess $50.00 par mandatories broke below par but were later quoted at $50.25, a New York-based trader said.

“There were better buyers,” a second New York-based trader said regarding the Hess mandatories, meaning that there were more bidders than sellers.

LinkedIn Corp.’s convertibles were bouncing around at sharply lower levels in very active trade. But the plunge was not as severe as that of the common shares of the Mountain View, Calif.-based business-oriented social networking service, which fell 43.6% after investors were disappointed by the company’s outlook.

LinkedIn’s convertibles were seen just barely holding in on a dollar-neutral, or hedged, basis. One trader said they were positive by about 0.25 point.

The drubbing that LinkedIn’s shares took led to selling in the shares of related companies, including convertible issuers ServiceNow Inc., Workday Inc. and salesforce.com Inc.

Shares of Pleasanton, Calif.-based Workday, a cloud-based computing company, fell $10.60, or 16%, to $54.245 on Friday. Workday’s 0.75% convertibles due 2018 were at 99.288 versus an underlying share price of $54.01 near the end of the day, a New York-based trader said. Those bonds had been at 105.5 previously.

Workday’s 1.5% convertibles due 2020 were traded at 101.4 on an outright basis, a level that was down from about 108 previously.

ServiceNow’s 0% convertibles due 2018 were quoted at 101.5 outright with shares of the company down $6.31, or 11%, at $52.31. This bond had recently been at 103.5 versus an underlying share price of $58.50.

Salesforce.com’s 0.25% convertibles due 2018 traded at 111 outright, with shares down 13% at $58.51, the trader said.

Overall, the convertibles market has been a mixed bag recently. “There was a lot of Q4 pain and it has been weak moving into 2016, so some guys are quieter than expected, but there have been a few things that have selectively performed better than their peer average in the market,” a New York-based trader said.

Alere Inc. was one of those outperformers after news that Abbott Laboratories would buy the Waltham, Mass.-based diagnostics and services company for $56.00 per share in cash. The Alere convertible bonds jumped outright and on a hedged basis.

“The Alere situation took a lot of people by surprise. They were not looking for it to happen this quickly and it was a nice swap play,” the trader said.

On the downside, “there is still pain in energy, mining and commodities,” he said, and there have been “a couple of names that traded down out of the blue.” Ironwood Pharmaceuticals Inc. was one of those names. The Ironwood 2.25% convertibles traded down a solid point on swap on Thursday.

It appeared that an outright player was selling out of those and had to price lower to get it to clear the market, he said.

“There have been outrights trying to get liquidity. The same kind of thing happened in the ARIA bonds later in the day,” the trader said, referring to Ariad Pharmaceuticals Inc.

New Hess mandatory around par

Hess’ 8% mandatory convertible opened below par but improved in early trading on Friday after the New York-based oil and gas producer priced the preferred shares at the cheap end of talked terms, market sources said.

The Hess $50.00 par mandatories broke below par but were last at $50.25, a New York-based trader said.

Later they were seen bid at $50.00.

“It’s hanging in there, moving right along with the stock,” a trader said.

There was both outright and hedged interest in the Hess mandatory despite the fact that a mandatory isn’t the best instrument for a hedged player because it isn’t possible to short the volatility. Nevertheless, the 8% dividend was attractive, the trader said.

“If you are in the name, this is something you should be taking a look at,” he said.

The mandatory priced with a 17.5% initial conversion premium. The 8% dividend and 17.5% premium compared to talk for a 7.5% to 8% dividend and a 17.5% to 22.5% premium.

Concurrently with the mandatory, Hess priced $975 million of common stock at $39.00 per share, which was a 10% discount to the closing share price of the stock on the New York Stock Exchange on Thursday.

Early Friday, Hess shares were down $4.60, or 11.6%, at $38.90.

Hess shares ended a little lower at $38.02, which was down $5.45, or 12.5%.

LinkedIn holds in

LinkedIn’s 0.5% convertibles due 2019 traded down to about 92 and were later bid at 91. Previously they were around par.

Investors slammed LinkedIn shares – which fell $83.90, or 43.6%, to $108.38 – after the company said that it expects first-quarter revenue of $820 million and earnings excluding items of 55 cents per share. That was below expectations for $867 million in revenue on earnings per share of 74 cents.

One trader said that amid the drubbing, the convertibles were better by 0.25 point. A second trader said they opened up a couple of points on swap.

Earlier in the week, when shares fell 6%, a convertibles buysider said that LinkedIn is a large issue that investors are willing to hold because it is essentially a very good credit, with very slim chances of having debt problems.

Mentioned in this article:

Alere Inc. NYSE: ALR

Ariad Pharmaceuticals Inc. Nasdaq: ARIA

Hess Corp. NYSE: HES

Ironwood Pharmaceuticals Inc. Nasdaq: IRWD

LinkedIn Corp. Nasdaq: LNKD

Salesforce.com Inc. NYSE: CRM

ServiceNow Inc. NYSE: NOW

Workday Inc. Nasdaq: WDAY

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