Morning Commentary: Chesapeake Energy moves on debt-for-equity news; new paper slips

By Rebecca Melvin

New York, Sept. 10 – Chesapeake Energy Corp.’s convertibles were active early Tuesday after the Oklahoma City-based oil and gas company announced it is swapping notes and preferreds for stock.

The Chesapeake 5.5% convertibles jumped up and were trading actively, a New York-based market source said. The bonds were last at 69.5 compared to 65 to 65.5 on Monday. Chesapeake shares were down.

Chesapeake agreed to issue 250,721,554 shares in exchange for about $40 million of its 5.75% convertible preferred stock, $112.7 million of its 4 7/8% senior notes due 2022, $129.3 million of its 5¾% senior notes due 2023, $155.8 million of its 5.5% convertible senior notes due 2026 and about $150 million of its 8% senior notes due 2027.

Elsewhere, convertible players noted mostly quiet trade and lower pricing on much of the newer paper that priced last week.

The Okta Inc. 0.125% notes due 2025, of which $1 billion priced on Sept. 4, “got crushed” on Monday with a stock drop of 10% to 11%. The bonds moved down outright and contracted on swap by about 0.5 point, a New York-based trader said.

The Okta notes were quoted at 93.75 bid 94.25 offered in the early going with the stock around $109.11.

The new Zillow Group Inc. convertibles were also down outright, but they were said to have expanded about 0.25 point on the way down. Insulet Corp.’s 0.375% convertibles due 2026, which debuted in the market last week, slipped to a 94 handle in the early going with the stock down.

But a retired portfolio manager and strategist focused on the opportunities that such cheapening creates, said, “the new issues have gotten off to a slow start,” but “convertibles specialists will be instantly aware of such situations.”

The low coupons of the new paper were noted as part of the cause. One source said the coupons are historically low. And in the case of Okta, a second source said that with “the little coupon, they are going to move down for a while until they get to a level where they will hold.”

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.