Chesapeake Energy adds outright as oil climbs; Salesforce.com paper hit amid Twitter talk

By Stephanie N. Rotondo

Seattle, Oct. 5 – Convertible bond market players were focusing on Chesapeake Energy Corp.’s $1.25 billion of 5.5% convertible senior notes due 2026 in trading on Wednesday.

“That’s the only thing trading,” the trader said, seeing about $23 million of the paper moving by mid-morning.

By the bell, over $40 million of the notes had traded.

The convertible bonds were also trading higher – along with the stock – as domestic crude oil prices broke through $50 a barrel. Those gains were spurred by the latest report from the U.S. Energy Information Administration, which again showed a surprise drawdown of inventories.

It was also reported on Wednesday that the $150 million greenshoe on the $1.1 billion deal had been fully exercised, bringing the total amount outstanding to $1.25 billion.

The issue priced Sept. 29.

Meanwhile, Salesforce.com’s convertible debt – as well as the underlying equity – got hit in midweek trading, as it was speculated that the company was making a play for Twitter Inc. The Wall Street Journal reported Tuesday that Twitter was expecting to start receiving takeover bids this week and that Salesforce.com – along with Google and Disney – was among the possible bidders.

Analysts, however, are not so keen on a Salesforce.com-Twitter merger.

But while Salesforce.com was in decline, Twitter’s debt was little changed, though its equity did improve.

Late in the day, Macquarie Infrastructure Corp. added a deal to the new issue calendar, announcing a $325 million offering of seven-year convertible notes.

J.P. Morgan Securities LLC and Barclays are the joint bookrunners. Credit Agricole CIB is the co-manager.

Macquarie plans to use the proceeds to fund acquisitions and to repay debt.

Chesapeake adds outright

Chesapeake Energy’s 5.5% convertible notes were in vogue during midweek trading.

A trader said the bonds were up a quarter-point on a dollar-neutral, or hedged, basis, or 4 points outright.

The stock was “very strong,” he added, climbing 7%.

A second trader said the issue made up “more than 10%” of the day’s total trading volume, placing the paper at 105.

He noted that the issue was trading all over the place earlier in the day, starting with a 103 handle, slipping to “102 and change,” and then pushing up to 104.5.

“The stock is up 40 cents,” the trader noted at mid-morning. “That’s a lot, considering where they strike.”

The convertible bond issue priced Sept. 30 with a 40% conversion premium, or a conversion price of $8.57 a share.

The equity ended up 43 cents, or 6.75%, at $6.80.

The trader opined that the gains were due to the rising price of oil, which traded up nearly 2% to over $50 a barrel after the U.S. Energy Information Administration reported the fifth consecutive weekly drawdown of crude inventories.

The agency said stockpiles fell by 3 million barrels last week. The American Petroleum Institute said on Tuesday that it expected a draw of 7.6 million barrels, though analysts polled by Reuters had predicted a build of 2.6 million barrels.

Salesforce.com slammed

Salesforce.com’s 0.25% convertible notes due 2018 were trading off outright on concerns the cloud computing company was considering bidding for social media company Twitter.

A trader said the debt drifted down 5 points outright. However, he added that the paper was up half a point on swap.

Another trader called the issue down over 4.5 points, trading with a 116 handle.

The stock waned $4.21, or 5.8%, to $68.42.

As for Twitter, its 1% convertible notes due 2021 were little moved on reports it could be expecting takeover bids this week.

One trader called the bonds up half a point outright.

The convertibles were pegged in a 95 to 95.5 context in early midweek trading.

At one point, the equity traded up nearly 7% on the day but settled in at $24.87, up $1.35, or 5.74%.

The Wall Street Journal reported Tuesday that Twitter would start receiving takeover bids this week and that Salesforce.com – along with Google and Disney – was among the possible bidders.

The article cited unnamed sources that said Salesforce.com’s Marc Benioff, chief executive officer, had been talking up the potential acquisition, calling Twitter an “unpolished jewel.”

On the news, analysts began expressing concern about a Salesforce.com takeover. Mizuho analysts, for instance, speculated that such a combination could destroy $12 billion to $17 billion of Salesforce.com’s value – an amount that could take two to three years to get back.

BTIG analysts meantime noted that Salesforce.com has been on a “spending spree,” and that while there could be some valuable data at Twitter, there was also a lot of unverified information on the social media site that could present issues.

Analysts at SunTrust Robinson Humphrey Inc. did say that a merger of the two companies could add value to Salesforce.com; it would be less dilutive to companies like Google or Disney.

Mentioned in this article:

Chesapeake Energy Corp. NYSE: CHK

Salesforce.com NYSE: CRM

Twitter Inc. NYSE: TWTR

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