Non-energy-related names lower; energy marginally weaker as oil rout persists; Fiat at 102

By Rebecca Melvin

New York, Dec. 12 – Many non-energy-related convertibles weakened on Friday as energy convertibles traded marginally lower, extending losses that have put a damper on the overall U.S. convertibles market for the past two weeks.

Oil prices continued their downward spiral and equities tumbled. West Texas Intermediate crude oil for January delivery fell another $2.42 to $57.53 a barrel after the International Energy Agency cut its forecast for global oil demand growth yet again in its monthly oil report.

The rout extended beyond names like Cobalt International Energy Inc. to include many non-energy related, at-the-money names, including Blucora Inc., Tesaro Inc. and Ctrip.com International Ltd.

“There’s a buyers’ strike today for paper,” a New York-based trader said.

He said the drag was widespread and many at-the-money names were down 0.5 point.

“The market opened weaker, and the tone was set then,” he said.

Meanwhile, Cobalt’s 2.625% convertibles extended losses, trading down to 57.50 from about 59, according to Trace data on Friday. Shares of the Houston-based oil and gas E&P company added 19 cents to $7.82, however.

Cobalt priced $1.2 billion of the 2.625% convertibles a year ago at a discount to par of 99.25.

Elsewhere, Fiat Chrysler Automobiles NV’s mandatory convertible was trading at 102 Friday afternoon with the underlying shares of the Italian automaker up more than 2% at $11.44.

The Fiat mandatory debuted in the market on Thursday and was said to have contracted by about a point that day.

Blucora down 0.5 point

Blucora’s 4.25% convertibles due 2019 were seen at 93 bid, 93.75 offered with the underlying stock at $13.90. The bonds were down 0.5 point on the day, a New York-based trader said.

Shares of the Bellevue, Wash.-based internet search and tax preparation business were off just 6 cents to $13.16 at the close.

“This is an internet media company that has nothing to do with energy,” the trader said.

It is a large coupon, smaller issue of a $550 million market cap company that might be attractive to investors until they notice how pricing has been trending in recent sessions, he pointed out.

“Everything’s weak. If you make a market on something, and it’s not sufficiently discounted, you won’t make the sale,” the trader said.

Elsewhere, Ctrip’s 1.25% convertibles were quoted at 96 bid, 96.25 offered with the underlying shares of the Shanghai-based internet travel company up nearly 6%.

“They were recently higher,” a market source said of the Ctrip convertibles.

Other names seeing weakness included VeriSign Inc.’s 3.25% convertibles. That paper has dropped about a point in the last week and a half, but the move was primarily this week, a trader said.

In addition to the 0.5 point drop in at-the-money paper, higher dollar, in-the-money issues were also for sale, a trader said.

“Nobody wants to buy, so you are forced to move the market down,” he said.

Tesaro’s 3% convertible was seen lower by 0.375 point, with shares of the Waltham, Mass.-based biotechnology company up 1%.

Energy marginally lower

Cobalt’s 2.625% convertibles due 2019 were last seen at 57.50 on Friday, which was down from 59 on Thursday.

In the past week, the convertibles of Energy XXI Ltd. and BPZ Resources Inc. traded down into the low 30s from the mid to upper 40s, and Goodrich Petroleum Corp.’s 5% convertibles traded around in the mid-50s.

“That’s the basket right there,” a Connecticut-based trader said of the distressed group of four oil and gas E&P issuers.

As recently as early August, the Cobalt 2.625% convertible was trading over par. In mid-June, Goodrich Petroleum and BPZ were both more than 120, and on Sept. 5, Goodrich was still 115. Since Dec. 9, the Energy XXI 3% convertible has dropped 24% to 32 from 42.

One trader said he wasn’t surprised to see oil prices drop further on Friday, only frustrated.

“They are going to be down here for a while,” a trader said of oil prices. “The Saudis have made it clear they are trying to put our shale guys out of business, and they don’t want to give up market share to Russia or Venezuela.”

A week ago, the WTI contract, which slipped to the $57 per barrel context on Friday, was at almost $66 per barrel.

This Friday’s International Energy Agency report included another cut of the agency’s forecast for global oil demand growth. It said world oil demand will increase by 900,000 barrels a day in 2015, a downward revision of 230,000 barrels a day from the previous report.

The Paris-based IEA said that it still expects a robust increase in production from nations outside the Organization of Petroleum Exporting Countries in 2015, and that it may take some time for supply and demand to respond to the current price rout.

Mentioned in this article:

Blucora Inc. Nasdaq: BCOR

BPZ Resources Inc. NYSE: BPZ

Cobalt International Energy Inc. NYSE: CIE

Ctrip.com International Ltd. Nasdaq: CTRP

Energy XXI Ltd. Nasdaq: EXXI

Fiat Chrysler Automobiles NV Nasdaq: FCAU

Goodrich Petroleum Corp. NYSE: GDP

Tesaro Inc. Nasdaq: TSRO

VeriSign Inc. Nasdaq: VERI

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