Ctrip.com drops dollar neutral; Alpha Natural mixed; traders unaffected by NYSE shutdown

By Rebecca Melvin

New York, July 8 – U.S. convertibles were weaker again on Wednesday as a slide in China-related names continued for a third straight day amid worries about China’s tumbling stock markets.

A shutdown of the New York Stock Exchange for about 3.5 hours due to a technical glitch was a nonissue for convertibles players, market sources said.

The China’s Shanghai Composite index tumbled nearly 6% to 3,507.19 on Wednesday, notching a three-month low despite another round of government measures to support the markets.

Among those measures, the China Financial Futures Exchange raised margin requirements for shorting contracts on small-cap CSI 500 index and state-owned firms were ordered not to cut holdings in their listed companies.

In the United States, market players were selling Ctrip.com International Ltd.’s newer C and D convertibles, and those bonds were lower on a dollar-neutral basis. The Ctrip Cs were down by about 0.75 point, a New York-based sellsider said.

Also among China issues, Sina Corp. and YY Inc. were lower for a third straight day.

Elsewhere, energy issues were fairly quiet in the secondary market. But Alpha Natural Resources Inc.’s convertibles, which mature Aug. 1, jumped to 45 from the mid 30s amid optimism that the issue will be paid, a New York-based analyst said.

Spurring the Alpha Natural issue was news that the company has borrowed $445 million from its credit facility, the analyst said.

But Alpha Natural’s longer-dated convertible bonds were lower, languishing in single digits. And ongoing weakness in the overall coal and energy sectors remains a theme.

Chesapeake Energy Corp. has seen its convertibles fall in recent sessions. A Chesapeake convertible preferred issue has fallen about 5 points in the last week, trading currently at about $600 compared to its $1,000 par, the analyst said.

Among technology names, Intel Corp. was an active trader, and cybersecurity firms FireEye Inc. and Palo Alto Networks Inc. were in focus on the back of the technology-related shutdown in the NYSE and United Airlines’ grounding of flights on computer problems, but on very little volume.

The NYSE glitch occurred after system updates late Tuesday and was not the result of cyber breach, the NYSE said. The shutdown occurred after United Airlines grounded all its flights worldwide early Tuesday due to a router problem that reduced network connectivity for several software applications.

The NYSE resumed trading after 3 p.m. ET but before the markets closed.

“The sign-off on the New York Stock Exchange was not more than a blip on the radar,” a New York-based trader said.

The primary market was quiet, and given the volatility and uncertainty in the broader markets it was unlikely that an issuer would feel comfortable bringing a deal in this environment, a New York-based trader said.

Ctrip weaker again

Ctrip’s 1% convertibles due 2020, or the C tranche, traded with a 93 handle and were down 0.75 point on a dollar-neutral basis on Wednesday, a New York-based sellsider said. The issue had also contracted on a dollar-neutral basis on Tuesday.

The Ctrip 1.99% convertibles, or the D tranche, were quoted in trade at 92.5.

The overall convertibles market felt heavy, sources said, but significant price drops were isolated to issues of specific companies like Ctrip.

“China has been active. In particular, there was selling in Ctrip, but nothing that was really concerning. There were a few capitulations in the newer bonds,” an analyst said.

These bonds are only a month old and “they just keep going lower and lower,” the analyst said by way of explanation.

Ctrip shares closed down $1.75, or 2.5%, at $69.35.

On Tuesday, Chinese internet convertibles were lower by multiple points, but had closed off their lows.

On Wednesday, Sina’s 1% convertibles due 2018 traded at 92.125, which was down from 93.5 on Tuesday, according to Trace data; and YY Inc.’s 2.25% convertibles due 2019 traded at about 87, which was down from about 88 on Tuesday and 89 on Monday.

Traders were trying to make sense of China’s slide despite efforts by that government to step in and boost the market. The latest moves included new restrictions on margin lending. The vast majority of China’s equities markets are retail investors, and a good percentage of those are leveraged.

China’s government has attempted to stop the bleeding with various measures. Over the weekend, it suspended initial public offerings and established a market-stabilization fund to spur stock purchases. The Chinese central bank also pledged to provide funding to support brokerages’ margin finance operations.

On June 27, the Chinese central bank had cut interest rates by 0.25% and loosened some banks’ reserve requirements.

Alpha Natural mixed

Alpha Natural’s 3.25% convertibles were seen changing hands at 45, which was up from the mid 30s previously, sources said.

Alpha Natural’s 3.75%, shorter-dated convertibles traded at 6.75, and the Alpha Natural 4.875% convertibles traded at 5.75, down about a point, a New York-based analyst said.

Alpha Natural shares fell about 3 cents, or 11%, to $0.2397.

Despite ongoing pessimism surrounding the coal sector, in general, and the Bristol, Va.-based coal mining company, in particular, there was news that holders of the very near-dated tranche took to be bullish: the company disclosed that on June 30 it borrowed $445 million under its revolving credit facility.

About $138 million of this amount carries an interest rate of 5.25% and matures on June 30, 2016, which is the expiration date of the revolver commitments of the associated lenders. The remaining approximately $307 million in borrowings carries an interest rate of 6.25% and matures on Sept. 30, 2017, which is the maturity date of the revolver, the company said.

Mentioned in this article:

Alpha Natural Resources Inc. NYSE: ANR

Chesapeake Energy Corp. NYSE: CHK

Ctrip.com International Ltd. Nasdaq: CTRP

FireEye Inc. Nasdaw: FEYE

Intel Corp. Nasdaq: INTC

Palo Alto Networks Inc. Nasdaq: PANW

Sina Corp. Nasdaq: SINA

YY Inc. NYSE: YY

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