Convertibles weaken amid broad-based sell-off in equities; Twitter, Iconix Brand hold in

By Rebecca Melvin

New York, Jan. 13 – U.S. convertibles weakened on Wednesday after equities turned lower at late morning and slid relentlessly downward to the market close, leaving the major indices in correction territory.

“There is real fear in the markets now, and we have seen a bit of weakness in the on-the-run names,” a New York-based trader.

Those names included Priceline Group Inc. Priceline’s 0.35% convertibles due 2020 traded actively and down about 2.5 points to 111.2 from 113.5. Shares of the Norwalk, Conn.-based online-booking service ended down $50.00, or 4.4% to $1,098.90.

Priceline’s 1% convertibles due 2018 ended down more than 3 points to about 128.32. And the Priceline 0.9% convertibles due 2021 changed hands at 98, which was down about 0.5 point to 0.75 point on the day.

Twitter Inc. saw buyers amid further weakening in the underlying shares of the San Francisco-based social media company. The shares hit another all-time low, ending Wednesday at $18.68, which was down 94 cents, or 5%, on the day. The shares slipped to an all-time low below $20.00 per share on Friday and continued to weaken on Monday. But pricing on Twitter’s two convertible bonds was a little better compared to Friday.

There was also some strength seen in some of the “peripheral, esoteric names,” a trader said.

SunPower Corp.’s older 0.75% convertibles were a little stronger and quoted at about 114.5 against shares that were down more than 3%, the trader said.

The newer SunPower 4% convertibles, which priced in December, were not seen in trade, however, as that paper remains “tucked away” for the time being, the trader said.

Elsewhere, Iconix Brand Group Inc.’s 2.5% convertible bonds were a little lower on an outright basis but better on swap.

Overall, the focus in convertibles was “pretty mixed,” another trader said. Despite big declines in energy again, convertible energy paper held up better than high-yield straight debt, a New York-based trader noted.

The convertibles of Chesapeake Energy Corp. and Cobalt International Energy Inc. were unchanged, for example.

SunEdison Inc.’s complex of eight convertibles issues – albeit some have been thinned by last week’s exchange deal – was not trading much despite lower shares and news that David Tepper of Appaloosa Management has filed a lawsuit to prevent the solar technology company from buying Vivint Solar Inc. and funneling some of those assets to its yieldco.

The Dow Jones industrial average closed down 364.8 points, or 2.2%, to 16,151.51 and is now down almost 5% since the start of the new year, which was only seven sessions ago.

The Nasdaq stock market fell 159.85 points, or 3.4% to 4,526.06 and the S&P 500 stock index fell below the technically important 1,900.00 level to 1,890.28, which was down 48.4 points, or 2.5%.

All the indices had started off the session with gains.

Twitter edges up on swap

Twitter’s 0.25% convertible due 2019, or the A tranche, was quoted at 84.875 at the end of Wednesday with the underlying shares down to an $18.00 handle. That compares to 83.875 bid, 84.375 offered on Friday versus an underlying share price of $19.80.

Twitter’s 1% convertible due 2021, or the B tranche, was quoted at 81.75 at the end of the day, compared to 81.875 bid, 82.375 offered versus the $19.80 share price on Friday.

“They held up OK,” a trader said.

Buyers were stepping in amid further weakening of the stock, and they were active and better by about 0.25 point on swap, a second trader said.

In the last 52 weeks, Twitter shares peaked at $53.49 per share.

Iconix bid at 81

Iconix’s 2.5% convertibles due in June were seen a little better at 81 bid.

“They pushed up a touch,” a trader said.

The Iconix 1.5% convertibles traded in line at 43.5.

Shares were down 9 cents, or 1.7%, at $5.37.

There was no further news related to reports on Tuesday that Advent Capital Management LLC has suggested refinancing the 2.5% convertibles and volunteered to participate if the company did a deal.

Iconix is a New York-based brand management company that licenses and markets 35 consumer brands, including Rampage, Mudd, Candie’s and Joe Boxer.

SunEdison 5% trades at 76

SunEdison’s 5% convertibles due 2018, of which $225 million priced last week, traded at 76 on Wednesday, a Connecticut-based trader said.

But overall there wasn’t much SunEdison in trade, sources said.

“There aren’t any of those trading over $1 million bonds,” a New York-based trader said of SunEdison at late morning.

“There’s a lot of risk there, and I think clarity is wanted, so not many people would make those,” the trader said.

Later a trader said that much of the SunEdison paper was now quoted in the 26 bid, 28 offered context.

SunEdison’s shares shed another 21 cents, or 7%, to $2.81, extending a 9.5% loss on Monday.

SunEdison’s new 5% convertible due 2018 was issued last week in exchange for parts of the existing convertibles.

SunEdison said that it is raising $725 million of secured terms loans and reducing $740 million of convertible debt via an exchange agreement involving a new convertible note and stock.

On Tuesday, SunEdison’s 2.75% due 2021 traded down to 33.375 from about 35.

Also SunEdison 6.75% perpetual convertible preferred, which priced in August, was indicated down to about 217 from 247.50 on Tuesday.

SunEdison’s 2.625% convertibles due 2023, 3.375% convertibles due 2025, 2.375% convertibles due 2022, 0.25% convertibles due 2020 and 2% convertibles due 2018 were not heard in trade.

On Friday, analyst Gordon Johnson of Axiom Capital Management told Prospect News that the new funds and exchange deal were not adequate to address SunEdison’s debt and that the company would likely have to follow up with additional measures.

Mentioned in this article:

Chesapeake Energy Corp. NYSE: CHK

Cobalt International Energy Inc. NYSE: CIE

Iconix Brand Group Inc. Nasdaq: ICON

Priceline Group Inc. Nasdaq: PCLN

SunEdison Inc. Nasdaq: SUNE

SunPower Corp. Nasdaq: SPWR

Twitter Inc. Nasdaq: TWTR

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