By Abigail W. Adams
Portland, Me., Jan. 2 – The secondary market was off to a whimper on the first trading day of 2018 but the primary market prepared to deliver the year’s first offering, and a large one at that.
Sempra Energy plans to price $1.5 billion in three-year series A mandatory convertible preferred stock after the market close Thursday with price talk set at a dividend of 6% to 6.5% and an initial conversion premium of 17.5% to 22.5%, according to a market source.
The deal carries a $225 million greenshoe. Morgan Stanley, RBC Capital Markets, and Barclays are joint bookrunners for the registered offering, which is being made concurrently with an offering of $2.5 billion of common stock, according to a company release.
Proceeds from the offerings will be used to help finance the pending acquisition of Energy Future Holdings Corp., which will include Energy Future Holdings Corp.’s indirect 80% ownership of Oncor Electric Delivery Company LLC.
The new offering is a hopeful indication there will be an uptick in new issuances in 2018, which many market sources have predicted.
However, the secondary market remained slow with trading volume at $76 million mid-afternoon, according to a market source.
“The market needs volatility to break out of this,” a market source said. “If your position is going up, what’s the incentive to write out a ticket.”
Weatherford International Ltd.’s 5.875% convertible notes due 2021 were among the notes that did trade during Tuesday’s session. The convertible notes dropped alongside the oil and natural gas company’s equity after the company announced it was scrapping its joint venture with Schlumberger NV in favor of divestment.
Becton, Dickinson & Co.’s series A mandatory convertible preferred stock due 2020, one of the top performers of 2017, is also expected to lose some ground in 2018.
Semiconductor companies started the year strong with the convertible notes of Advanced Micro Devices Inc. and Micron Technology Inc. making gains during Tuesday’s session. Cleveland-Cliffs Inc. 1.5% convertible notes due 2025, which priced in early December, also continued their expansion.
Weatherford’s storm
After ending the year in the 107 to 108 range, Weatherford’s 5.875% convertible notes dropped more than 5 points during Tuesday’s session. The notes were trading in the 101 to 104.205 range before ending the day Tuesday at 101.303, according to Trace data.
Weatherford’s stock dropped 17.03% to $3.46 at market close Tuesday, the first trading day since the company announced it had abandoned its joint venture with Schlumberger, a Houston, Texas-based oilfield services company.
The stock was trading at 2 times their normal volume, a market source said.
“This is a horrible thing for them,” the source commented.
Weatherford late on Friday announced that it had scrapped plans for a joint venture for its North American pressure pumping and well completion operations, opting instead to divest the business to Schlumberger for $430 million in cash.
Proceeds will be used to deleverage Weatherford’s $7.9 billion in debt, the company said.
Becton Dickinson
After a strong year, Becton Dickinson’s series A mandatory convertible preferred stock due 2020 is expected to lose some ground in 2018. The convertible preferred stock was in the 59 range in late December.
The convertible preferred stock was at 58.13 bid, 58.25 offer early in Tuesday’s session, a market source said.
“At these prices, they’re going to start to get picked away at regardless of what rates they got,” a market source said.
S&P lowered its rating of the company’s mandatory convertible preferred stock on Dec. 29 to BB+ from BBB- due to the debt Becton Dickinson assumed from the purchase of C.R. Bard.
Proceeds from the $2.7 billion issuance of mandatory convertible preferred stock due 2020 were used to help fund the acquisition of the Murray Hill, New Jersey-based medical technologies company, which Becton Dickinson completed on Dec. 29.
Becton Dickinson’s stock closed the session Tuesday at $217.84, an increase of 1.77%.
The gainers
The chipmakers began 2018 strong, with convertible notes that took a hit during the late November sell off making gains during the first trading day of 2018. Micron’s 3% convertible notes due 2043, which ended 2017 at 145.57, climbed to 152.656 during Tuesday’s session, according to Trace data.
The Boise, Idaho-based semiconductor company’s convertible notes were among the hardest hit in the November sell off of semiconductor stocks, prompted by shaken confidence in the sector’s future growth potential.
The equity-sensitive 3% convertible notes have waivered between the mid 140s and high 150s throughout December, showing signs of recovery before again falling. Micron stock jumped 6.2% to $43.67 during Tuesday’s session.
Advanced Micro Devices’ 2.125% convertible notes due 2026 saw more than a 7 point gain as the Sunnyvale, Calif-based semiconductor company’s underlying equity also jumped.
The 2.125% convertible notes traded to a low of 149.5 but ended the day at a high of 157.921, according to Trace data. The notes ended December at 150. Advanced Micro Devices stock jumped 6.81% during Tuesday’s session to end the day at $10.98.
The tech sector saw its largest single-session gain since November, due, in large part, to the rally of semiconductor companies.
Elsewhere Cleveland-Cliffs’ 1.5% convertible notes due 2025 continued to expand in the New Year. The notes traded in a range of 111.072 to 116.625 before ending Tuesday at 116.45, according to Trace data.
The notes climbed throughout the last week of December to end 2017 around 110.
Cleveland-Cliffs’ stock jumped on Tuesday to $7.9, an increase of 9.57%. B. Riley analysts recently increased their first quarter earnings estimate for the Cleveland, Ohio-based mining company to $0.11 per share from their previous $0.04 per share.
B. Riley analysts anticipate the company’s earnings will continue to increase with estimates for a second quarter earnings per share of $0.37 and a price target of $10.
Mentioned in this article:
| Sempra Energy: | NYSE: SRE
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| Weatherford International Ltd.: | NYSE: WFT
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| Becton, Dickinson & Co.: NYSE: BDX
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| Advanced Micro Devices Inc.: | Nasdaq: AMD
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| Micron Technology Inc.: | Nasdaq: MU
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| Cleveland-Cliffs Inc.: | NYSE: CLF
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