Whiting Petroleum’s $1 billion deal up strongly on debut; Chesapeake adds 0.25 point

By Rebecca Melvin

New York, March 24 – Whiting Petroleum Corp.’s newly priced 1.25% convertibles traded up on their debut in secondary market action Tuesday after the Denver-based oil and gas exploration and production company priced $1 billion of the five-year notes at the cheap end of talked terms.

The new Whiting notes were marked at 105 bid, 105.5 offered at the end of the session versus the $30.91 closing share price. That was up about 2.5 points on swap, a syndicate source said.

The Whiting deal was the centerpiece of action in U.S. convertibles on Tuesday, market sources said.

Also in the U.S. primary market is inContact Inc.’s $100 million of seven-year convertible senior notes, which were expected to price after the market close at a 2.5% to 3% coupon and a 30% to 35% initial conversion premium.

But the sudden flurry of new issuance this week hit both the U.S. market and overseas.

Internationally, Aabar Investments PJS priced €2 billion of bonds in two tranches, exchangeable for shares of Italian bank UniCredit SpA. Both Aabar tranches priced at the cheap end of talked terms.

And in the United Kingdom, Market Tech Holdings Ltd. launched and priced £112.5 million of 2%, five-year convertible senior bonds Tuesday at par to yield 4.5% with a 16.5% initial conversion premium.

Back in established issues, Chesapeake Energy Corp.’s three convertible bonds were seen a little stronger on swap as shares added 1% after news that the Oklahoma City-based energy company cut its capital expenditure for 2015 and that billionaire investor Carl Icahn is raising his stake in the company to 11%.

Also among energy names, Energy XXI (Bermuda) Ltd.’s 3% convertibles traded within the context of the previous level at 28.5 bid, 29 offered, a Connecticut-based trader said. Shares of the Houston-based energy exploration and production company added 8 cents, or 2%, to $3.84 on the session.

New Whiting Petroleum jumps

Whiting Petroleum’s new 1.25% convertibles traded up to 105 bid, 105.5 offered on Tuesday against a share price of $30.91. That was up about 2.5 points on swap, a syndicate source said.

Right out of the chute, the paper was seen to have traded at 103 bid, 103.5 offered versus an underlying share price of $30.44.

Whiting Petroleum shares closed down $7.48, or 19.5%, at $30.91.

Shares fell in part because some investors were banking on a potential takeover of Whiting Petroleum as the company was known to be considering a sale. The trio of deals to raise capital essentially rules out the takeout.

The strong performance of the convertibles was chalked up to the fact that there has not been a lot of new energy paper in the market of late.

“There has been a lot of equity paper, but not convertibles. So it was the scarcity factor on top of other good reasons,” a syndicate source said.

Allocations were pretty evenly split between outright, or fundamental, investors and hedged players, a second syndicate source said.

“It’s a good mix,” the syndicate source said. “It’s more even than Southwestern Energy, which was the last energy deal [in the market]. That was a mandatory and mainly went to outright investors. This one has more of a balance.”

In mid-January, Southwestern Energy Co., a Houston-based independent oil and gas company, priced $1.73 billion of mandatory convertible preferred stock.

The fact that shares fell sharply upon launch of the latest capital raise, which also included $1 billion of common stock and $750 million of straight bond debt, was taken into account in pricing the convertible, a syndicate source said.

Early in the session, a New York-based trader said, “The deal is doing really well.”

The bonds priced at the cheap end of talked terms, which was for a yield of 0.75% to 1.25% and an initial conversion premium of 30% to 35%.

The convertibles are non-callable for life with no puts, and they have dividend and takeover protection.

Proceeds from the offerings will be used to repay all or a portion of the amount outstanding under its revolving credit facility and for general corporate purposes.

Chesapeake a little better

All three of the Chesapeake bonds were trading better by about 0.25 point on the day, a New York-based trader said, citing news that the company is cutting its capital budget by $500 million and that Icahn has upped his stake in the company to 11%.

The Chesapeake 2.75% convertibles traded right around par, a Connecticut-based trader said.

Chesapeake shares were up 15 cents, or 1%, to $14.26 on the day.

The Chesapeake capital budget was reduced to $3.5 billion from its earlier guidance of $4 billion to $4.5 billion.

In 2015, the company intends to operate 25 to 35 rigs, which is down from an average of about 64 rigs used in 2014. Its 2015 production target was reduced to 231 million to 236 million barrels of oil equivalent, or average daily production of 635,000 to 645,000 barrels of oil equivalent, which represents 1% to 3% production growth over the prior year after adjusting for 2014 asset sales.

Mentioned in this article:

Chesapeake Energy Corp. NYSE: CHK

inContact Inc. Nasdaq: SAAS

Market Tech Holdings Ltd. London: MKT

Whiting Petroleum Corp. NYSE: WLL

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