LinkedIn steady despite lower shares; Peabody convertibles near zero amid bankruptcy fears

By Rebecca Melvin

New York, March 16 – LinkedIn Corp.’s convertibles were little changed in active trade on Wednesday as the common shares of the Mountain View, Calif.-based career-networking company dropped 5% following an analyst’s downgrade.

The LinkedIn shares were downgraded to “equal weight” from “overweight” by Morgan Stanley analyst Brian Nowak, who said earnings and guidance had disappointed and that he had overestimated the company’s ability to grow its platform and underestimated the investment needed to make it grow.

LinkedIn’s 0.5% convertible was among the most active names in a day that was pretty inactive, convertibles sources said.

The convertible market has “ground to a standstill,” a New York-based trader said.

Equities were also quiet, at least in the first part of the session ahead of the latest Federal Reserve policy update. They rallied into the close, however, with the S&P 500 stock index ending up about 0.5% to its highest level for 2016 so far. But market sources said the main problem for the convertibles market is a lack of new issuance.

“We need some new paper to get this market going again,” a second New York-based trader said. He noted the three deals priced last week, which was an improvement, and brought this month’s tally to within striking distance of March 2015’s level, or down by only one deal and about $100 million in issuance; but for the year to date, convertibles issuance is down 86% from 2015.

“It’s very surprising,” a trader said, regarding how weak new issuance has been. “In fact, there should be a deal announced as we have this conversation.”

The trader was referring to the fact that new deals are typically launched midweek, after the market close.

The U.S. convertibles primary market has struggled to regain its footing after volatility cratered markets in January. But other markets have come back. The high-yield market has improved notably, but its primary is still down by 74% for the year to date, according to Prospect News data.

Meanwhile, the Federal Reserve wrapped up a two-day policy meeting Wednesday afternoon and stood pat on interest rates, leaving the Federal Funds target rate unchanged at 0.25% to 0.5%. Equities responded favorably to the news, but it was largely what the market was expecting, a trader said.

“High yield is massively better. It has had a record couple of weeks in terms of a rebound; everything is open, and there were no surprises from the Fed today. They did what the Street expected; now we need the bankers to cooperate,” a trader said.

SunEdison lower

SunEdison Inc. was another active name in the convertibles space on Wednesday, and those issues were down along with shares on news that it has identified “material weaknesses” in accounting and delayed filing its annual report again. On Feb. 29, the company said it was delaying filing its annual report to conduct an internal investigation of its financial position.

“It failed to release its 10-K, but the stock did battle back to $2.08 on the highs,” a trader said.

Peabody delays payment

Peabody Energy Corp., the St. Louis based coal producer, delayed the interest payment on two loans and warned that it may have to seek Chapter 11 bankruptcy protection if it cannot negotiate an agreement with creditors.

The delayed interest payment triggers a 30-day grace period. In its regulatory filing, Peabody said uncertainty around global coal fundamentals and economic growth concerns of some countries that import coal as well as the potential for additional regulatory requirements on coal producers were reasons for the notice.

The Peabody Energy 4.75% convertibles due 2066 had already been trading around 1, and slipped to 0.1 on Wednesday.

Elsewhere in the energy sector, Chesapeake Energy Corp. continued to trade favorably, with the Chesapeake 2.5% convertibles at 68.625 as oil prices turned upward. On Tuesday, the bonds bounced around mostly between 67.25 and 69. Chesapeake shares were up 21 cents, or 5%, to $4.39.

“Chesapeake is one of the massive winners. The Chesapeake 2.25% convertibles had traded as low as 14, and they are now 39.5 to 40,” a trader said.

Other names like Whiting Petroleum Corp. have also improved significantly, but the “Chessies had one of the biggest, most dramatic rebounds,” the trader said.

While there have been a handful of defaults in the energy sector, the specter of a cascade of defaults has largely dissipated for now, the trader said.

“You had a huge rally in oil. Even gold is coming back. All the energy and commodities that were destroyed have really rebounded in the first quarter,” the trader said.

LinkedIn steady

LinkedIn’s 0.5% convertibles remained steady on Wednesday, closing at 87.875 bid, 90.25 offered versus the closing share price of $109.81.

The bonds were in line with where they have been trading and didn’t waver, but shares were down 5% on the day and are down more than 50% in the last year.

Morgan Stanley said that it was reducing its near-term and long-term revenue and EBITDA forecasts and now thinks LinkedIn will be a materially smaller platform than previously thought. It reduced its share price target to $125.00 from $190.00.

LinkedIn was “fairly active. It has basically nuked straight down,” a trader said, referring to the fact that its down move matched moves lower in the stock.

Mentioned in this article:

Chesapeake Energy Corp. NYSE: CHK

LinkedIn Corp. Nasdaq: LNDK

Peabody Energy Corp. NYSE: BTU

SunEdison Inc. Nasdaq: SUNE

Whiting Petroleum Corp. NYSE: WLL

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