THQ active but flat after bankruptcy filing; Illumina adds on hedge on takeover chatter

By Rebecca Melvin

New York, Dec. 20 - THQ Inc. was a top trading name in the convertibles space on Thursday after the Agoura Hills, Calif.-based video game publisher filed for Chapter 11 bankruptcy Wednesday afternoon. But the 5% convertibles, of which there are about $100 million outstanding, didn't budge in terms of pricing, trading at pre-filing levels of around 11 bid, 12 offered.

THQ has a stalking horse bid for its assets of $60 million.

Illumina Inc.'s convertibles were higher by about 2 points outright and also better on a dollar-neutral, or hedged, basis after a newspaper report that the San Diego-based gene-sequencing company may have reached an agreement to be taken over by Swiss pharmaceutical giant Roche.

Greenbrier Cos. Inc.'s convertibles fell at least 2 points outright, retracing gains notched earlier in the week, amid several downgrades and rising doubts that activist investor Carl Icahn's proposed $20-per-share buyout of the railcar company by rival American Railcar Industries Inc. will actually get done.

Still trading actively after word of a takeover deal were the convertibles of Knight Capital Group Inc. That paper was steady at about 99.25. The Jersey City, N.J.-based electronic trading company has agreed to be acquired by rival Getco Holdings Co. LLC in a deal valuing the company at about $1.4 billion.

"It's definitely not guaranteed that you're going to get par," a New York-based trader said of the Knight Capital deal.

Overall, convertible bond players were either quiet or focused on those last minute tie ups made before the Christmas holiday and year-end. There was no new issuance Wednesday or Thursday.

Equities ended slightly higher.

In economic news, gross domestic product expanded at a 3.1% annual rate, the Commerce Department said in its third estimate on Thursday. The figure was up from the 2.7% pace reported last month. It was the fastest growth since late 2011. Economists expected GDP growth would have risen to 2.8%.

Separately, the number of jobless claims rose by 17,000 to a seasonally adjusted 361,000 in the week ended Dec. 15, the Labor Department said. The figure matched forecasts.

THQ trades on bankruptcy

THQ's 5% convertibles due 2014 traded at 11.5 and also 11.375, and was seen essentially unchanged from after the close Wednesday.

Shortly before the filing, some paper was sold at 9, but then it was better bid, a Connecticut-based trader said.

A rally sparked in the underlying shares on Thursday was meaningless and probably sparked by short covering, the trader said.

The company has a stalking horse bid for its assets, but it wasn't clear whether creditors will make a bid to preserve value for themselves, the trader said.

The outlook isn't bright for video game publishers. "Look at Activision. They don't have converts, but the stock has been weak," a New York-based trader said.

But moves in bankrupt convertibles this past year have been anything but predictable. AMR Corp., which filed last December, is currently trading at 86. Bankrupt A123 Systems Inc. was in the 30s and is now is in the 60s. And Patriot Coal Corp., which filed for bankruptcy protection in July, fell to 15 from par and has been quiet recently, now trading around 14.

THQ plans to sell substantially all of its assets to Clearlake Capital Group LP for a proposed $60 million. There is approved financing in the form of a $27.5 million asset-based revolving credit facility to help the company move through the bankruptcy process and a $10 million term loan.

Last year at this time the THQ 5% convertibles dropped from the upper 80s to the upper 70s on a downgrade in which the analyst cited the video game publisher's likelihood of missing guidance due to underperformance of its uDraw video game.

Illumina expands on hedge

Illumina's convertibles moved up about 2 points outright at 97 and were higher by between 0.5 point to a point on a hedged basis on the potential of a $66.00 per share offer that would value the company between $8.1 billion and $8.2 billion, a New York-based trader said. Shares jumped by $4.05, or nearly 8%, to $56.22.

"They expanded," a trader said.

Greenbrier slips

Greenbrier's 3.5% convertibles due 2018, of which there is $230 million outstanding, traded down to 93.75 on Thursday after moving up to 96.529 early Tuesday.

Greenbrier's 2.375% convertibles due 2026, of which there is only $68 million left outstanding, weren't heard in trade.

Greenbrier shares slumped $2.45, or 12%, to $18.16 on Thursday.

Greenbrier was downgraded by Stifel Nicolas to hold from buy and also downgraded by Raymond James to market perform from strong buy.

"People are starting to doubt. A, Icahn has already tried to do this, and B, there are antitrust issues. It's definitely not a done deal," a trader said.

Icahn owns about 10% of the Lake Oswego, Ore.-based supplier of transportation equipment and services to the railroad industry. He has suggested the bid that represents a 5.4% premium to Greenbrier's Monday close.

Mentioned in this article:

AMR Corp. Pink sheets: AAMRQ

A123 Systems Inc. Pink sheets: AONEQ

Greenbrier Cos. Inc. NYSE: GBX

Illumina Inc. Nasdaq: ILMN

Knight Capital Group Inc. NYSE: KCG

Patriot Coal Corp. Pink sheets: PCXCQ

THQ Inc. Nasdaq: THQI

© 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.