Cobalt, Goodrich Petroleum come in on hedge as energy sector sags; Tesla little changed

By Rebecca Melvin

New York, Oct. 27 – Several energy names came off sharply by about 0.5 point to a point on a dollar-neutral, or hedged, basis on Monday amid a mostly quiet convertibles market, a New York-based trader said.

Both Cobalt International Energy Inc. and Stone Energy Corp. came in about a 0.5 point to a point on hedge, and Goodrich Petroleum Corp. fell 4 or 5 points. But Chesapeake Energy Corp. was mostly quiet, the trader said.

Pricing slid early as equities sold off and stabilized later in the session, sources said. Nevertheless, Monday’s pullback appeared to be different from the weakness experienced in recent weeks and more like sector rotation out of energy and into other things, the trader said.

“Today was a little more unique because energy stuff felt better for sale, while everything else was more or less flat, or to buy,” the trader said.

“When the market was selling off a couple of weeks ago, energy was leading the charge, but everything else was moving with it,” he said.

Weighing on the energy sector on Monday was a Goldman Sachs report that cut the investment bank’s outlook for U.S. oil prices to about $75 a barrel in 2015, down from a previous forecast of $90 a barrel.

A decline to $75 a barrel was predicted in the first quarter, with an even greater drop in the second quarter.

Elsewhere, convertibles were pretty quiet, sources said.

“It was a slow start to the week,” one New York-based trader said.

In technology, Tesla Motors Inc.’s convertibles traded lower in line with lower shares. But Yahoo! Inc.’s convertibles were better, moving in tandem with Alibaba Group Holding Ltd., which was boosted by a buy rating that Jefferies published on the China e-commerce company.

The Yahoo! 0% convertibles due 2016 changed hands around 106.4, which was up nearly a point with the underlying shares up 2.8% at $44.32.

Chiquita Brands International Inc.’s 4.25% convertibles were seen around par on Monday after news that the Charlotte, N.C.-based fruit distributor has agreed to be acquired by Latin America’s Cutrale-Safra Group for about $742 million, or $14.50 per share.

The merger news comes on the heels of a Chiquita shareholder vote that axed a merger with Ireland’s Fyffes plc.

Twitter Inc.’s 0.25% convertibles due 2019 changed hands at 97.56, which was unchanged with shares toggling the flat line early on Monday. Shares ended down 2.8% by the end of the day, and before the San Francisco-based social media company posted quarterly earnings after the market close that pushed shares down 10% in after-hours action.

Cobalt comes in

Cobalt’s 2.625% convertible notes due 2019 ended the session around 74, which was seen down about 0.5 point to 1 point on a dollar-neutral basis, assuming a delta of about 50% to 60%.

The Cobalt 3.125% convertible notes due 2024 were down similarly at about 76.

Shares of the Houston-based oil exploration and production company ended lower by 47 cents, or 4.2%, at $10.69.

Cobalt was lower this morning, when the stock was selling off; then it started to stabilize, with a little bit of a bid near the end of the session, a New York-based trader said,

A second trader said that the loss was more like 0.5 point to a point.

He said that holders in the Cobalt paper were split pretty evenly between yield and hedged players.

“That’s why you have a pretty nebulous delta. They probably move here on a 50% to 60% delta.”

Stone Energy’s convertibles also contracted about out a point.

“Energy was generally lower, with some down more than others,” a trader said.

Goodrich’s 5% convertibles were down about 4 points or 5 points and traded late in the session at around 80.

The Goodrich paper traded at 86 on Thursday and earlier Monday at 82.

“Oil got hit pretty hard, off of the Goldman piece. It recovered some, but energy bonds have been pretty heavy all day,” a trader said.

“It’s hard to say where we go from today. Barring anything new going on, I expect this to kind of continue,” he said.

With the earnings calendar filling out, “Hopefully things with become more name specific,” a trading source said.

Mentioned in this article:

Chesapeake Energy Corp. NYSE: CHK

Chiquita Brands International Inc. NYSE: CQB

Cobalt International Energy Inc. NYSE: CIE

Goodrich Petroleum Corp. NYSE: GDP

Stone Energy Corp. NYSE: SGY

Tesla Motors Inc. Nasdaq: TSLA

Twitter Inc. Nasdaq: TWTR

Yahoo! Inc. Nasdaq: YHOO

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