Convertibles steady to end turbulent week; Intel up in line with shares; energy names up

By Rebecca Melvin

New York, Aug. 28 – U.S. convertibles ended the week on a quiet note on Friday after market turbulence sent equities, yields and convertibles plunging on Monday over a worrisome global growth picture. The losses followed a 5% decline in the Dow Jones industrial average and S&P 500 stock index during the last two days of the previous week.

Wednesday and Thursday brought market gains, and calm pervaded on Friday, with the major stock indices actually ending the week higher. But pricing for convertibles remained lower overall from where things started out, a New York-based sellsider said.

“Things are extremely quiet. I am not seeing a lot of follow through, although there are a few people bidding on bonds,” the sellsider said.

Among bonds in demand on Friday were Intel Corp.’s convertibles, which were trading up in line with the underlying shares of the Santa Clara, Calif.-based chip giant.

Several beaten-down energy names traded notably higher on Friday as crude oil prices continued to bounce from lows in the $39.00 per barrel context on Wednesday. West Texas intermediate crude jumped another 6.5% on Friday to $45.32 per barrel, adding to a 10% rally on Thursday.

Energy convertible paper that was higher included Energy XXI (Bermuda) Ltd.’s 3% convertible notes due 2018, which rose to about 14.5 from 9 previously; Peabody Energy Corp.’s 4.75% convertibles due 2066, which traded up to 14.75 from 11.9 last; and WPX Energy Inc.’s 6.25% mandatory convertible preferred shares, which priced last month at $50 par and were seen closing at 37.25 on Friday. That was up from about 34.25 previously, according to a pricing source.

But Vipshop Holdings Ltd.’s convertibles pulled back a little on an outright basis along with lower shares of the Guangzhou, China-based online discount retailer.

Vipshop’s 1.5% convertibles due 2019 crossed the Trace tape last at 116.65, which was down a point or two from Thursday, but still higher by about 3 points from Wednesday, traders said.

Vipshop shares traded down about 80 cents, or 4%, to $19.00.

Meanwhile, Ariad Pharmaceuticals Inc. jumped amid reports that Baxalta may be interested in acquiring the Cambridge, Mass.-based oncology company. Early this month, Baxalta was talked about as a takeover target itself, having Shire plc as a potential suitor.

Ariad’s 3.625% convertibles were seen up by 20 points on Friday to nearly 124 from 104 previously. Ariad’s common stock surged $2.91, or 41%, to $9.89 amid the takeout chatter.

Overall, the calm finish was seen as an encouraging sign, one sellsider said.

“If we end slightly positive and start positive, that would be good,” he said, referring to Monday’s market open.

In fact, equities ended narrowly mixed, but the fact that the moves were understated was deemed as positive, given the big swings that marked trading earlier in the week.

The S&P 500 stock index closed up 1.21 points, or 0.06%, at 1,988.87, the Dow Jones industrial average ended down 11.76 points, or 0.07%, at 16,643.01 and the Nasdaq composite index gained 15.62 points, or 0.3%, to 4,828.32.

For the week, the S&P 500 was up about 1%.

“It’s very stable and calm, so maybe the worst is behind us,” the sellsider said.

But there was evidence of the wild ride that investors took this past week. The CBOE Volatility index closed at 26.05 on Friday, slightly lower than Thursday’s close, but well above its 10-year average of about 20.

Intel bonds higher in line

Intel’s 3.25% convertible due 2039 traded up about 3 points on an outright basis to 144.5, compared to 141.5 on Thursday.

The Intel 2.95% convertibles were last seen at 116.5. Intel shares were up 60 cents, or 2.2%, at $28.34.

Overall there were no clear trends, a sellsider said about Friday’s convertibles session. But there were buyers in certain names including Intel, he said.

Mentioned in this article:

Ariad Pharmaceuticals Inc. Nasdaq: ARIA

Peabody Energy Corp. NYSE: BTU

Energy XXI (Bermuda) Ltd. Nasdaq: EXXI

Intel Corp. Nasdaq: INTC

Vipshop Holdings Inc. Nasdaq: VIPS

WPX Energy Inc. NYSE: WPI

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