U.S. convertibles slump as equities plunge; China woes weigh on Ctrip.com; Cobalt higher

By Rebecca Melvin

New York, Aug. 24 – U.S. convertibles fell on Monday in tandem with a plummet in equity markets as a worrisome global growth picture and concerns about how severe a correction in the financial markets might be continued to rock investors.

The losses followed a 5% decline in the Dow Jones industrial average and S&P 500 stock index during the last two days of last week, also on concerns about slowing global economic growth led by China and tumbling commodities prices.

The convertibles market fell about 0.25 point to a point on a dollar-neutral, or hedged, basis on Monday, a New York-based trader said.

“Things have quieted down now. It’s not as bad as it was at 8 a.m., but it was pretty bad,” the trader said.

The Dow plunged as much as 1,000 points in the first few minutes of trading Monday in an avalanche of selling on the heels of a particularly bad day in international financial markets, especially in China. The Shanghai Composite index tumbled 8.5%, and was in negative territory for the year.

But the Dow clawed back in a day marked by large swings, still ending down however by 588.40 points, or 3.6%, to 15,871.35.

The S&P 500 ended down 77.68 points, or 3.9%, to 1,893.21, and the Nasdaq composite index ended down 179.79 points, or 3.8%, to 4,526.25.

Oil prices also careened to fresh lows. West Texas intermediate crude, the U.S. oil benchmark, traded down $2.372, or 5.8%, to $38.12 a barrel on the New York Mercantile Exchange.

U.S. Treasuries rose, with the yield on the 10-year Treasury bond down 2.8% to 1.9970%, falling under the 2% mark for the first time since April.

Among convertibles that took the brunt of the selling was anything China related, market sources said.

Ctrip.com International Ltd., a casualty in last week’s trade, continued to be dragged through the mud on Monday.

The Ctrip 1% convertibles due 2020, or the C tranche, were quoted at 86.75 bid, 88.75 offered at the end of Monday, against the common shares of the Shanghai-based travel services company that were down 4% at $60.50.

The Ctrip 1.99% convertible due 2025 were quoted at 83.75 bid, 85.75 offered. In July, the Cs were at 94.25 and the Ds were at 92.5 when the shares were at $71.00.

Ctrip’s $1.1 billion of C and D convertibles priced in June.

“Anything with China exposure or anything with credit issues is going to be particularly brutal,” a New York-based trader said.

That brings one to the convertibles of SunEdison Inc., which priced $900 million in convertible bonds in May and another $650 million of convertible preferreds last week. The company has doubled its debt load in the past year to acquire assets that it is struggling to build and operate.

The SunEdison 6.5% perpetual convertible preferred has fallen about 15% to 86.75 bid, 88.75 offered in the week since it priced.

The two convertible issues that priced in May are languishing in the low 60s. The SunEdison’s 2.625% convertible due 2023, or the E tranche, was quoted at 62.125 bid, 62.625 offered, and the SunEdison 3.375% convertible due 2025, or the F tranche, was at 61.75 bid, 62.25 offered against an underlying share price for the solar technology company of about $10.00. The shares have fallen more than 60% in the last month.

In the energy sector, American Energy Partners LP’s 3.5% convertibles due March 1, 2021, which can convert on a contingent basis into the company’s initial public offering of common stock, fell to 15 from 20, previously.

The Oklahoma City-based energy company, involved in onshore U.S. unconventional resource plays, priced the bonds in February 2014.

WPX Energy Inc.’s 6.25% mandatory convertible preferred shares, which priced last month at $50, fell 6% on Monday, or $2.24, to $24.12. The mandatories outperformed the common stock of the Tulsa, Okla.-based natural gas and oil exploration and production company, which fell 10% to $6.02.

But Cobalt International Energy Inc.’s common shares and convertibles were actually up on the day. The Cobalt 2.625% convertibles due 2017 ended around 67.50, which was up from 64 last, according to Trace data, against the common shares of the Houston-based oil and gas exploration and production company that jumped 74 cents, or 10%, to $7.98.

The Cobalt 3.125% convertibles due 2024 rose to nearly 65 from 60.

The rise was driven by news that the company is selling assets to the Angolan Sociedade Nacional de Combustiveis de Angola – Empresa Publica for $1.75 billion.

The sale to Sonangol is for all of Cobalt’s 40% participating interest in Blocks 21/09 and 20/11 offshore Angola. The transaction effective Jan. 1, 2015 is subject to customary Angolan government approvals, which are expected prior to the end of the year.

Elsewhere, among technology names, SanDisk Corp.’s 1.5% convertibles due 2017 fell 3 points to 115.25 from about 118, according to Trace data. SanDisk shares ended down $1.40, or nearly 3%, at $47.65.

Mentioned in this article:

Ctrip.com International Ltd. Nasdaq: CTRP

Cobalt International Energy Inc. NYSE: CIE

SanDisk Corp. Nasdaq: SNDK

SunEdison Inc. Nasdaq: SUNE

WPX Energy Inc. Nasdaq: WPX

WPX Energy Inc. preferred NYSE: WPXP

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