Cobalt, Energy XXI rebound; Xilinx adds on hedge after earnings; Monster up after pricing

By Rebecca Melvin

New York, Oct. 17 – U.S. convertibles were up strongly on Friday with many names that were hard hit in the recent rout recouping half to more than half of their losses. Traders were palpably tired by Friday afternoon after the market’s whipsaw action this past week.

“Energy names came back a lot,” a New York-based trader said. Other names also pounded this past week, including SunEdison Inc. and Tesla Motors Inc., came roaring back as well, adding 0.5 point to 2 points on delta and reversing a good portion of the week’s drop, which equaled 0.5 point to multiple points down on Monday alone.

But by Friday afternoon, Cobalt International Energy Inc. had recouped 5 points to 6 points of a contraction that totaled about 10 points on swap since late September, a New York-based trader said.

Fellow battered energy name, Energy XXI (Bermuda) Ltd. had also recouped significantly over Thursday and Friday, the trader said.

Elsewhere, Xilinx Inc.’s convertibles traded very actively and gained on a dollar-neutral basis after an upgrade by Wells Fargo followed on the heels of positive quarterly earnings that sent the San Jose, Calif.-based programmable chipmaker’s shares up 6.7%.

But fellow technology company SanDisk Corp. saw its convertibles lower outright and flat on a dollar-neutral basis after the Milpitas, Calif.-based data storage company reported better-than-expected earnings but lower than-expected revenue. The company also warned that current quarter revenue could be lower than expected.

Meanwhile, a pair of smaller, recent new issues – EnerNOC Inc., which priced $160 million of 2.25% convertible five-year notes in August, and Electronics For Imaging Inc., which priced $300 million of 0.75% convertible five-year notes in September – were seen in trade on Friday.

Shares of EnerNOC, a Boston-based energy intelligence software company, added 0.5%, and the company’s convertibles traded at 83, which was off 0.15 point, according to Trace data.

Shares of Electronics for Imaging, a Fremont, Calif.-based printing devices company, added 1%, and the company’s convertibles changed hands at 98, which was off 0.05 point, Trace said.

In this week’s primary market, the only new deal ended up doing well. Monster Worldwide Inc.’s newly priced 3.5% convertibles whipped around upon release for secondary market dealings on Friday. The issue traded anywhere from 97 to 104 after the New York-based employment-services website priced $125 million of the five-year senior notes at the cheap end and beyond the cheap end of talk.

After Monster shares slid 18% lower on Thursday, some market players thought the deal might not be completed, so they were surprised that it did well.

Trading was active with the equity market rushing back from steep losses. The Dow Jones industrial average gained more than 260 points, or 1.6%, on Friday, snapping a six-day losing streak.

The CBOE Volatility index dropped back to 21.99, which was down 17%.

“It’s better,” a New York-based trader said of the market. But he added that he was still cautious.

“I would be cautious about not over-paying for higher premium, longer-dated names. We may not be done in terms of selling,” the trader said.

“We had some pretty violent stock moves. Things have come in a lot outright and on hedge, the trader, whose voice sounded tired, said.

Cobalt, Energy XXI rebound

Cobalt International’s 3.125% convertible, which is a $1.15 billion issue, traded up to 78 bid, 79 offered on Friday from 74 bid, 75 offered on Thursday.

Shares of the Houston-based oil and gas company added 20 cents, or 1.9%, to $10.81 on Friday.

Energy XXI’s 3% convertibles due 2018 traded up to 75 on Friday from a low of 67 earlier in the week, a New York-based trader said.

“The higher yield, energy names were really just following crude oil,” the trader said.

In the United States, light sweet crude for November delivery added 5 cents to $82.75. Crude oil dropped into correction territory last week amid a supply glut, concerns about economic growth and potentially dampened global demand.

Cobalt staged one of the more dramatic reversals after a heavy drop, the trader said.

“They bounced quite a bit,” a trader said.

Xilinx adds 0.375 point

Xilinx’ 3.625% convertibles traded up about 0.375 point on a hedged basis on Friday, a New York-based trader said.

It also accounted for a good 5% chunk of the day’s trading action, according to Trace data tallies, the trader said.

Over the past 2.5-week period, the longer-dated, higher premium names came in sharply as is typically the case when the equity market contracts.

But SanDisk shares slipped further into the red at the end of Friday after reporting weak results late Thursday.

SanDisk’s 1.5% convertibles due 2017 slipped to 168 to 169 in the early going when shares were about $84.47. These bonds were previously 170 to 173 on Thursday.

SanDisk’s 0.5% convertibles due 2020 were at 111, which was down only 0.3 point.

SanDisk shares ended lower by $2.51, or 3%, to $82.80.

SanDisk said that fourth-quarter revenue would be below analysts’ estimates due to supply constraints.

SanDisk forecast revenue of $1.80 billion to $1.85 billion for the fourth quarter ending December. Analysts on average were expecting $1.88 billion.

Excluding non-recurring items, SanDisk earned $1.45 per share and revenue rose 7% to $1.75 billion.

Analysts had expected a profit of $1.33 per share and revenue of $1.77 billion.

Monster adds on debut

Monster’s newly priced 3.5% convertibles due 2019 were seen at 101.5 bid, 102.5 offered late Friday with the underlying shares down 7 cents, or 1.6%, at $3.96.

The bonds were reported to have traded anywhere between 97 and 104.

“It was weird,” one trader said, attributing part of the favorable pricing to “the whole market being better.”

Monster shares sagged a little further early on after sliding 18% on Thursday.

The New York-based employment site priced $125 million of five-year convertible senior notes at par after the market close Thursday to yield 3.5% with an initial conversion price of 32.5%.

Proceeds will be used to pay for the cost of the capped call transaction, to repay in full a term loan under an existing credit facility and to repay a portion of the revolving debt under an existing credit facility.

Pricing of the Rule 144A deal came at the cheap end of 3% to 3.5% coupon talk and beyond the cheap end of 37.5% to 42.5% premium talk.

There is a greenshoe for $18.75 million for the deal that was placed via bookrunner BofA Merrill Lynch.

The notes are non-callable and have takeover protection.

In connection with the offering, Monster entered into a capped call transaction with an affiliate of one of the initial purchasers of the notes. The cap price under the call will initially be $7.035 per share, which represents a premium of about 75% from the issuer’s perspective.

“I’m surprised it got done. It did price well at the cheap end, and the stock performed,” a trader said, adding that he suspected some anchor order that helped the bond place in a very ugly market.

Mentioned in this article:

Chesapeake Energy Corp. NYSE: CHK

Cobalt International Energy Ltd. NYSE: CIE

EnerNoc Inc. Nasdaq: ENOC

Electronics For Imaging Inc. Nasdaq: EFII

Monster Worldwide Inc. NYSE: MWW

SanDisk Corp. Nasdaq: SNDK

Xilinx Inc. Nasdaq: XLNX

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