Convertible debt trades mixed after Trump win; Peabody boosted, clean energy sector suffers

By Stephanie N. Rotondo

Seattle, Nov. 9 – Convertible bonds were trading mixed on Wednesday following Donald Trump’s win in the U.S. presidential election.

The Republican candidate’s victory came as a surprise, as most polls indicated that Democratic nominee Hillary Clinton was the front-runner.

“Stocks are bouncing around but holding higher for the most part,” a trader noted.

Still, trading volume in the convertibles space continued to be thin.

Peabody Energy Corp.’s 4.75% convertible junior subordinated debentures due 2066 were moving up in the wake of the election results.

A market source pegged the debentures at 24 at the bell, an outright gain of 4.25 points.

Earlier in the session, a trader pegged the paper in a 22 to 23 context, which compared to a range of 19 to 20 on Tuesday.

“Trump is going to help coal companies, and clean energy is going to suffer,” a trader said, as the president-elect has made deregulation a cornerstone of his campaign.

The trader pointed out that Green Plains Inc., an ethanol production company, was seeing its stock trade off.

But the trader also commented that Trump will need to exercise caution when it comes to clean energy.

“He can’t drive them out of business, because that’s jobs lost,” he said. Trump has also staked his campaign on job creation, so “that’s one area he will have to be careful about.”

Green Plains’ 3.25% convertible notes due 2018 were not actively traded in the midweek session. The last round-lot trade put the bonds around 139. The equity underlying the debt declined $1.05, or 4.19%, to $24.00.

Meanwhile, Molina Healthcare Inc.’s 1.125% convertible notes due 2020, as well as its 1.625% convertible notes due 2044 were losing ground, as the company’s stock got trampled.

“Certainly health care is in focus,” a trader said, given uncertainties around Trump’s vow to repeal and replace Obamacare. While his views on drug-price hikes haven’t been seen as favorable to drug manufacturers, a lack of detail on his overall health care plan put pressure on insurers.

Molina drops outright

A trader said Molina Healthcare’s 1.125% convertible notes were off 13 points outright but up 0.5 point on swap.

He placed the issue at 136.5 bid, 137 offered against a stock price of $50.50.

He noted that the 1.625% convertible notes were also weaker, about 7 points lower outright. However, he said that the issue has “a smaller delta” – $60.00 versus $50.50.

He pegged the paper at 111.5 bid, 112.25 offered versus a share price of $50.50.

At another desk, the 1.125% convertibles were seen at 134.75, a loss of over 17 points on the day.

Earlier in the day, a trader said the 1.125% convertibles dropped 11.5 points outright, seeing the issue at 139.55.

The stock was also weaker, he said, placing the equity at $52.17.

In the wake of the election, many analysts have weighed in on what it means for health care. The general sentiment is that, with no clear plan available, the uncertainty could have massive consequences.

“Trump’s candidacy raised more questions about his health care proposals than it provided answers,” said a PwC report on Wednesday. “These economic uncertainties place significant cost pressures on industry stakeholders.”

One big question is whether or not the 20 million people who have been able to get insurance under Obamacare would be left in the cold.

“The burden of governance means that Republicans must replace the ACA with something as it is political suicide to kick 20 million Americans...to the proverbial curb,” a Height Securities report said.

One detail Trump has given is that he would allow insurers to compete across state lines – a proposal he believes would keep costs down and also allow those with pre-existing conditions to keep or get insurance.

However, some – including Larry Levitt, a senior vice president at Kaiser Family Foundation – have said that such a proposal has flaws. It could, for instance, run afoul with consumer protections, if one is buying insurance from another less-regulated state. It could also provide challenges in terms of developing networks.

Molina is a Long Beach, Calif.-based managed care provider.

Mentioned in this article:

Green Plains Inc. Nasdaq: GPRE

Peabody Energy Corp. OTCBB: BTUUQ

Molina Healthcare Inc. NYSE: MOH

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