Morning Commentary: Weatherford extends gains after strong debut; Alibaba mandatory below par

By Rebecca Melvin

New York, June 3 – U.S. convertibles remained mostly focused early Friday on the two mega deals that launched and priced this past holiday-shortened week; and the pricing trends for those two issues when they debuted in secondary market trading on Thursday remained intact, market sources said.

Weatherford International Ltd.’s 5.875% exchangeable continued to trade strongly in good volume, and Softbank Group Corp.’s 5.75% mandatory securities exchangeable into Alibaba Group Holding Ltd. shares continued to lag.

The Weatherford exchangeables traded up to near 112 with shares a little higher, compared to 108.25 to 108.75 near the market close on Thursday.

The Alibaba mandatory was seen a little below par.

One trader observed that the Weatherford deal and how it modifies the company’s capital structure seemed like a decision that the market likes and the Alibaba deal’s unique structure as a mandatory exchangeable tied to Alibaba’s biggest shareholder may be causing potential players to stay away. “There is the possibility that as more clarity emerges around the deal it might perform better,” a trader said.

The two super-sized issues, at $5.5 billion for the Alibaba deal and $1.1 billion for Weatherford, accounted for the lion’s share of market action on Thursday and Friday.

In the broader markets on Friday, equities were lower after the May U.S. jobs report missed expectations. The Labor Department said that non-farm payrolls rose by only 38,000 jobs last month and the unemployment rate fell to 4.7%.

According to two surveys, economists had been expecting payrolls to rise by 158,000 to 164,000 jobs and unemployment to hold steady or edge lower to 4.9%. In April, non-farm payrolls rose by 160,000 jobs and the unemployment rate held steady at 5%.

The Labor Department’s report also showed employers hired 59,000 fewer workers in March and April than previously reported.

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