Comstock Resources convertibles in focus; Sempra expands and contracts; Gogo active

By Abigail W. Adams

Portland, Me., July 13 – The convertibles space closed out the week quietly with the $2.27 billion in new paper that priced over the past week drifting out of focus.

Comstock Resources, Inc.’s PIK convertible notes were one of the top volume movers on Friday after the company announced a tender offer and consent solicitation for its 7.75% second-lien convertible PIK notes due 2019 and its 9.5% second-lien convertible PIK notes due 2020.

Zillow Group Inc.’s 1.5% convertible notes due 2023 and Western Digital Corp.’s 1.5% convertible notes due 2024 were also major volume movers during Friday’s session although with little movement in price, sources said.

Sempra Energy’s newly priced 6.75% mandatory convertible preferreds continued to improve on Friday with the preferreds seen expanded on a dollar-neutral basis.

As Sempra Energy’s new mandatory convertible preferreds expanded, the company’s 6% mandatory convertible preferreds saw a slight contraction, a market source said.

Gogo Inc.’s 3.75% convertible notes due 2020 were active and were holding their ground as stock dropped off more than 16% during Friday’s session.

The notes are busted and are trading largely on their ability to get paid upon maturity, a market source said.

Comstock Resources in focus

Comstock Resources’ 7.75% PIK convertible notes were among the top movers in the secondary space with the notes climbing about 2 points outright with trades between 101.75 and 102, sources said.

More than $17 million of the bonds were on the tape by late afternoon.

Trading of the Frisco, Texas-based energy company’s 9.5% notes was muted in comparison.

However, the notes did rise about 0.25 point outright to trade at 100.25 with about $4 million of the bonds changing hands.

Comstock Resources tendered for the full outstanding amount of the notes with holders to receive $1,000 in cash per $1,000 principal amount plus accrued interest, according to an SC TO-I filing with the Securities and Exchange Commission.

The company is also soliciting consents to amend the notes’ indentures to make changes to the redemption provisions, release the liens on the collateral securing the notes and eliminate most of the covenants and default provisions on the notes, according to the SEC filing (see related story elsewhere in this newsletter).

The notes were trading above the tender offer price due to their large coupon and the amount of interest holders will receive, a market source said.

Volume movers

Western Digital’s 1.5% convertible notes were the most active issue of the day with about $19 million of the bonds on the tape by late afternoon.

The 1.5% notes were seen trading at 101.3 versus an equity price of $79.61.

Western Digital stock closed Friday at $79.52, an increase of 0.85%. While active, the notes were largely unchanged.

Zillow Group’s 1.5% convertible notes were also active in the secondary space. The notes were seen trading at 104.35 versus an equity price of $62.18. About $13 million of the notes had traded by late afternoon.

Zillow stock closed Friday at $62.73, a decrease of 0.52%.

Sempra’s trade off

Sempra Energy’s 6.75% mandatory convertible preferred stock continued to see gains on Friday.

The preferreds closed the day at $102.3285, an increase of 44.23 cents or 0.43%. The preferreds have expanded about 0.60 point since hitting the market on Wednesday.

The preferreds were priced against a concurrent stock offering with an initial offering price of $113.75.

The greenshoe on the preferreds was exercised in full, lifting the total size of the deal to $575 million (see related story elsewhere in this newsletter).

While Sempra’s new preferreds have expanded since their market debut, Sempra’s 6% mandatory convertible preferreds have contracted.

The 6% preferreds closed Friday at 102.67, an increase of 30 cents or 0.29%. Friday marked the first day of gains for the preferreds since the Sempra’s 6.75% preferreds hit the market.

The 6% preferreds were seen contracted about 0.15 point early afternoon on Friday.

Sempra’s common stock closed Friday at $116.51, an increase of 0.76%.

Gogo holds

Gogo’s 3.75% convertible notes due 2020 remained active in the secondary space with the notes up about 1 point outright as stock tanked more than 16% during Friday’s session.

The notes traded to a high of 89.75 before settling around 88, a market source said. Gogo stock closed Friday at $4.04, a decrease of 16.18%.

Gogo’s convertible notes dropped to the low 80s in early May after Moody’s Investors Service downgraded the company to Caa1 from B3.

The notes have steadily risen since and continued to rise despite common stock plummeting on Friday.

“They’re so out of the money, they’re going to move up on their ability to get paid off,” a market source said.

Gogo announced a restructuring plan on Thursday that involves reducing personnel costs by 30% by 2020 and conducting a strategic review of options which could involve splitting the company.

The company has also received inquiries about a potential acquisition, which it is reviewing, Bloomberg reported.

Mentioned in this article:

Comstock Resources, Inc. NYSE: CRK

Gogo Inc. Nasdaq: GOGO

Sempra Energy NYSE: SRE, NYSE: SREPrA

Western Digital Corp. Nasdaq: WDC

Zillow Group Inc. Nasdaq: ZG

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