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Morning Commentary: Energy convertibles remain in focus after OPEC accord; Rexnord’s new deal eyed
By Stephanie N. Rotondo
Seattle, Dec. 1 – Energy-related convertible debt continued to fly higher on Thursday as oil prices remained strong in the wake of a production cut agreement from OPEC.
The oil cartel made the deal on Wednesday, surprising a market that had expected the talks to dissolve. As a result, domestic crude prices rose more than 8% in midweek trading and were up over 3% in early dealings on Thursday.
A trader noted that the day’s “top two names are energy.” Specifically, Weatherford International Ltd. and Chesapeake Energy Corp., he said.
Weatherford’s 5.875% exchangeable notes due 2021 were pegged at 112.5 bid, 113 offered, a gain of 5 to 6 points outright. On Wednesday, the issue added 7 to 7.5 points.
As for underlying shares (NYSE: WFT), they were up 37 cents, or 7.24%, at $5.48.
In the primary space, there was little follow-through in Newpark Resources Inc.’s $87.5 million of 4% convertible senior notes due 2021, after being one of the top traders upon pricing on Wednesday.
“That is so typical in Convertland,” a trader said.
Once the deal hit the market on Wednesday, it traded up smartly to 107.75 bid, 108.25 offered.
But while Newpark’s luster was fading, the market did have a $350 million offering of series A mandatory convertible preferred stock from Rexnord Corp. to look forward to.
Price talk is for a yield of 5.5% to 6% with an initial conversion premium of 17.5% to 22.5%, according to a market source.
“I think there is going to be a huge amount of demand for that coupon,” a trader said. He added that the deal could attract “a lot of different buyers,” which could allow the company to grow the deal to as much as $450 million.
The deal is expected to price later in the day.
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