Convertibles mostly quiet, but mandatories better bid; Black & Decker gains on swap

By Rebecca Melvin

New York, May 15 – U.S. convertibles started the week on a quiet note on Monday as the S&P 500 stock index and the Nasdaq stock market pushed to new record highs.

The convertible market had no new issues price. In the secondary market, convertible bonds were mostly quiet; but convertible mandatories were better bid, market sources said.

The two new mandatories that debuted last week were particularly positive. Both Stanley Black & Decker Inc.’s 5.375% convertible equity units and Becton, Dickinson & Co.’s 6.125% convertible preferred stock improved.

“It was a quiet Monday, but those two mandatories, in all of converts, were doing well,” a New York-based trader said.

Behind the positive moves in those mandatories is fundamental demand for the common stock underlying the two issues. “They are good-quality issuers, and fundamental, long-onlys like the stories behind both of these companies,” the trader said.

Elsewhere in the market, oil names were poised to move higher in line with a spike in oil prices after a statement from the energy ministers of Russia and Saudi Arabia backed the extension to March 2018 of an agreement of the Organization of the Petroleum Exporting Countries to cut output and reduce oil inventories.

Weatherford International plc’s 5.875% exchangeable senior notes due 2021 traded last at 116.4, which was up 4 points on the day, according to Trace data. That was against shares of the Swiss-based oil and gas equipment and services company that were also up, but which seemed to underperform the convertible. The shares added 19 cents, of 4%, to $5.23.

HealthSouth Corp.’s 2% convertibles due 2043 continued to see trading actively in carryover action from Friday. The HealthSouth paper traded up as much as 2.5 points to 133 during the session and was last at 132.11, according to Trace data.

In addition, cybersecurity was front and center in market news after a massive cyberattack hobbled many companies, hospitals and schools around the world on Friday and through the weekend. But investors in convertibles of issuers in or related to the cybersecurity business didn’t appear to be ready to jump into those names or induce moves in keeping with the pace of gains in the underlying shares.

The convertibles of Milpitas, Calif.-based cybersecurity company FireEye Inc. were little fazed by a 7.5% jump in the underlying shares. FireEye’s 1% convertibles due 2035 traded up less than a point to 94.925, and FireEye’s 1.625% convertibles due 2035, which currently stands at 90.625, didn’t trade even as FireEye shares jumped $1.11, to $15.90.

Shares of Sunnyvale, Calif.-based Proofpoint Inc. also jumped, closing up $5.90, or 7.4%, to $86.05. The Proofpoint 0.75% convertible due 2020 jumped to as high as 124.5 but was last at 123.5, compared to 117 previously. But the Proofpoint 1.25% convertible due 2018, which stands above double par and which trades sporadically, was not seen in trade.

Inactivity was chalked up to the fact that it was a Monday, and Mondays in the convertibles market are typically slow. But another reason given by one trader was that earnings season is coming to a close, “and people are rejiggering portfolios, and looking forward to the next set of catalysts,” a New York-based trader said.

Market players are anticipating more primary activity, which picked up last week after a hiatus that included the beginning part of May. But, in general, the tone is expected to be quiet.

“It will be a pretty quiet period for the next couple of weeks or even months; and we are already in a regime of low volatility. So calendar will be key,” the trader said.

Meanwhile U.S. equities headed higher again, with the S&P 500 stock index closing up another 0.5% to 2,402.34, its highest level ever.

The oil and technology sectors, including those aspects of the sector that have to do with internet and internet security, boosted equities.

The Nasdaq stock market climbed to 6,149.67, which was up 28.44 points, or 0.5%, on the day, and the Dow Jones industrial average gained 85.33 points, or 0.4%, to 20,981.94.

Mandatories carry the day

Black & Decker’s 5.375% convertibles were quoted up 0.5 point on a dollar-neutral basis on Monday to 103.45 bid, 203.70 offered versus the closing price of the underlying stock of $137.43.

The 0.5-point move up was on top of a 2.5-point to 3-point move upward on a dollar-neutral, or hedged, basis on Friday.

The New Britain, Conn.-based diversified power tool maker brought $675 million of new 5.375% convertible equity units late Thursday. Meanwhile, the new $2.475 billion of Becton Dickinson mandatories added another 39 cents, and a 52.50 to 52.75 market was called fair for that issue with the stock at $185.13 at the close.

“Fifty-two fifty was probably the bid side,” a trader said.

Shares of the Franklin Lakes, N.J.-based medical technology company finished the session up 0.51 cents, or just 0.3% higher on the day.

Mentioned in this article:

Becton, Dickinson & Co. NYSE: BDX

FireEye Inc. Nasdaq: FEYE

HealthSouth Corp. NYSE: HLS

Proofpoint Inc. Nasdaq: PFPT

Stanley Black & Decker Inc. NYSE: SWK

Weatherford International Ltd. NYSE: WFT

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