General Cable adds on hedge; Regeneron contracts amid stock surge; Ixia down; Cliffs eases

By Rebecca Melvin

New York, May 1 - Company-specific news, including earnings reports, kept convertible traders focused on individual names Wednesday, with action in the overall market doused by a drop in equities, market sources said.

"It was pretty quiet today," a New York-based trader said.

Among companies that reported earnings, General Cable Corp.'s convertibles were lower outright, but added about a point on a dollar-neutral, or hedged, basis after the Highland Heights, Ky.-based diversified industrial company reported earnings and revenue that missed estimates and guided lower for second-quarter and full year results.

Regeneron Pharmaceuticals Inc. moved in the opposite direction, with the convertibles higher outright, but lower on a dollar-neutral basis, as its shares jumped on news that Allergan Inc. is halting the trial of a macular degeneration drug that was pegged as a contender for Regeneron's Eylea drug.

Ixia Inc. convertibles dropped on an outright basis along with the underlying shares after the Calabasas, Calif.-based provider of IP-based infrastructure and services posted earnings that were deemed "not that good," even though they beat estimates.

Cliffs Natural Resources Inc.'s mandatory convertible preferreds, which are listed, were lower outright, along with the common stock of the Cleveland-based commodity play. But the mandatories didn't lose as much as ground as the stock on Wednesday, and the relatively new convertible has improved modestly in recent weeks, a New York-based trader said.

Stocks fell after some negative economic news. Meanwhile, the Federal Open Market Committee closed out a two-day policy meeting with a statement that it will continue an $85 billion per month bond buyback program, signaling that it could either increase or decrease the amount purchased each month depending on the job market and inflation.

The statement was not consistent with signals earlier in the year that the Fed might taper down QE moving into the second half of the year.

In economic news, Automatic Data Processing and Moody's Analysts reported that 119,000 private sector jobs were created in April, which was below the 155,000 expected.

General Cable adds on hedge

General Cable's 4.5% convertibles due 2029 were seen at 115.25 bid, 116.25 offered at the end of the session versus an underlying share price of $31.70.

The level was lower by about 6 points outright, but expanded by about a point dollar-neutral, moving on an 85% delta, a Connecticut-based trader said.

General Cable's 0.875% convertibles due 2013 were unchanged, trading at about 99.75, a New York-based trader said.

General Cable shares fell $2.84, or 8%, to $31.64 in active trade.

"It was a disaster, earnings wise. They guided down and the stock is getting hit," the Connecticut-based trader said.

The company missed earnings estimates by 2 cents a share and gave guidance for second-quarter earnings that was below consensus. Meanwhile revenue for the diversified industrial company was in line with expectations.

For the first quarter, the company reported operating income of $32.0 million and a loss per share of $0.94, which reflected a charge of $0.80 per share related to currency devaluation of the Venezuelan bolivar in the first quarter, according to a company release.

Excluding certain items, adjusted earnings per share were $0.23 and adjusted operating income was $46.2 million, both within management's range of expectations for the first quarter.

Regeneron slips

Regeneron 1.875% convertibles due 2016 traded at 291 which was up 33 points outright. At the end of the session they were seen at about 292.

That level was seen as parity plus 0.75 point, which was down compared to parity plus 2 points to 2.5 points on Tuesday, a trader said.

The convertibles are seen as being held on a 100% delta.

Shares of the Tarrytown, N.Y.-based biotechnology company jumped $22.15, or 10%, to $237.29.

Allergan, a former convertible bond issuer, announced a setback for its DARP in-eye drug during an earnings conference call, when it said that results of a mid-stage trial did not justify moving the drug into late-stage testing immediately. Instead, Allergan will run additional mid-stage trials to get more data on effectiveness and safety and refine the design of future late-stage studies.

The modified schedule will likely delay eventual approval by one or two years.

Regeneron, whose shares touched an all-time high on Wednesday, reports strong sales of its eye drug quarter after quarter, a trader said. The company was expected to report first-quarter results on Thursday. For full-year 2013, Regeneron is expected to report $1.2 billion to $1.3 billion in sales.

Ixia down outright

Ixia 3% convertibles due 2015 traded at 110.875, which was down nearly 6 points on the day, according to Trace data. The convertibles, which traded outright during the day, were seen ending the session at 111, a trader said.

The delta on which the bonds are held came in a little bit.

Ixia shares fell $1.96, or 12%, to $14.51 in heavy volume.

The earnings were not great, a trader said. "They weren't very good."

Cliffs generally better

Cliffs Natural 7% class A mandatory convertible cumulative preferred due 2016 ended the session down $0.69, or 3.4%, to $19.78. It ended at its lows for the day.

Shares of Cliffs Natural ended down $1.01, or, 4.7%, at $20.33 in lighter than average volume.

The mandatory, which priced Feb. 14 at par of $25.00, has slid lower to about $20.00 since that time.

Nevertheless, in the last three weeks the mandatories have been better on swap, or on a hedged basis, since it was announced that they would be added to the preferred shares ETF, a New York-based trader said.

"It seems to have gone about 5 cents to 10 cents better," the trader said.

The bonds mature Feb. 1, 2016.

Cliffs, a Cleveland-based mining and natural resources company, reported first-quarter income that was hit by lower iron ore prices. It dropped more than 70% but was better than expected.

Net income was $97.1 million, or 66 cents per share, down from $375.8 million, or $2.63 per share, in the year earlier quarter.

A $6 million income tax benefit helped the most recent quarter, and last year's results included a $255 million tax benefit.

Excluding one-time items the company earned $89 million, or 60 cents per share, compared with $212 million, or 85 cents per share in the year earlier quarter.

Revenue fell 6% to $1.14 billion. Analysts had expected earnings of 32 cents per share on revenue of $1.16 billion.

Cliffs said that lower revenue was driven by a 10% drop in global iron ore sales volume, which contributed to a 2% decrease in cost of goods sold.

Mentioned in this article:

Cliffs Natural Resources Inc. NYSE: CLF

General Cable Corp. NYSE: BGC

Ixia Inc. Nasdaq: XXIA

Regeneron Pharmaceuticals Inc. Nasdaq: REGN

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