Convertibles better bid; high-grade names active, in line; Herbalife adds as shares surge

By Rebecca Melvin

New York, July 22 – U.S. convertibles were better bid on Tuesday with a wide spectrum of paper in trade including a lot of investment-grade names.

Convertibles followed mostly higher equities, as well as issues of companies reporting earnings and names in the news like Herbalife Ltd., which saw its stock price surge more than 25%.

“There was a bid in the market, which was good to see. Things have been leaking premium for a long time,” a convertibles trader said of the convertibles market in general.

Among high-grade names, recently priced Macquarie Infrastructure Co. LLC’s 2.875% convertibles were the No. 1 trader, a New York-based sellsider said. “Guys can’t seem to get enough.”

Herbalife’s 2% convertibles due 2019 traded actively and edged higher on an outright basis to about the 90 mark with shares of the company surging despite a three-hour presentation made by hedge fund manager Bill Ackman against the Cayman Islands-based nutrition company.

Elsewhere, Teleflex Inc.’s 3.875% convertibles due 2017 traded in line as shares of the Pennsylvania-based medical device maker added 0.8%.

In earnings news, Electronic Arts Inc. posted better-than-expected quarterly revenue and profit in its report after the market close, citing strong sales and cost control.

The Electronic Arts’0.75% convertibles due 2016 traded down nearly 1 point on an outright basis to 131.2 in the early going, according to Trace data. Shares of the Redwood City, Calif.-based video game publisher were a bit weaker during the session but ended unchanged at $38.42.

Bankrupt Central European Distribution Corp.’s 10% convertible junior secured notes due 2018 crossed at 89.5, but it was uncertain if that was a genuine market level given that the buy and sell was the same price and it was several points above the previous market for that issue, a New York-based trader said.

Also buyers stepped in to lift Fannie Mae’s perpetual preferred convertibles, which were up a bit, a second New York-based trader said.

Macquarie a little better

Macquarie’s 2.875% convertibles gained in active trade on Tuesday and were seen last at 109.64, according to Trace data, with shares of the New York-based infrastructure services company up 34 cents, or 0.5%, to $73.04.

Macquarie shares had been up in the early going but faded toward the unchanged mark at late morning after reaching a record high on Monday.

Macquarie priced an upsized $305 million of the five-year senior notes earlier this month.

The Macquarie bonds were the most actively traded convertible on the day, and they were a little better, traders said.

Herbalife adds, stock surges

Herbalife’s 2% convertibles due 2019, of which more than $1 billion was priced earlier this year, traded up to 90.238 bid late in the day from 83.25 at the end of Monday, while shares bounced $13.75, or 25.5%, to $67.77, after tanking 11% on Monday ahead of Ackman’s presentation.

The bonds traded actively, but no traders queried by this reporter had traded the name. One source said that it is difficult for convertible arbitrage players to borrow the shares.

Pershing Square Capital Management’s Ackman alleges that the company is a pyramid scheme, calling it a “criminal enterprise” and labeling Herbalife’s chief executive officer “a predator.”

On Tuesday, Herbalife responded to Ackman’s three-hour presentation on nutrition clubs after the market close, saying, “Once again, Bill Ackman has over-promised and under-delivered on his $1 billion bet against our company. After spending $50 million, two years and tens of thousands of man-hours, Bill Ackman further demonstrated today that the facts are on our side.”

Herbalife also said in its statement that Ackman is “running out of time to make good on his bad bet against Herbalife, with the equivalent of 25.7 million shares in put options that expire on Jan. 17, 2015. Today is evidence that Bill Ackman will not succeed.”

A New York-based convertibles trader said, “He fell on his face.”

In a separate release, Herbalife cited findings from research and analysis conducted by Walter H.A. Vandaele, Ph.D. of Navigant Economics LLC, which determined that “Herbalife’s U.S. business operations are consistent with the socially beneficial MLM model and inconsistent with the socially harmful pyramid scheme model.”

Teleflex in line

The Teleflex 3.875% convertibles due 2017 were quoted last at 176 bid, 176.5 offered with the underlying shares at $106.28.

Earlier they had changed hands at 174.95 with the underlying shares at $105.21, which was up 0.2%.

The bonds were said to have traded “fine” or in context and were called 2.5 points to 3.25 points over parity.

“These don’t open up much. I have not seen them much different from that for a long time,” a trader said.

A second trader said earlier in the day that there was a seller in the name.

“Looks like a dealer needed out; the print looks low,” the trader said of Teleflex.

The first trader said that the company’s announcement early Tuesday that it has received regulatory clearance to market a specialty catheter was not behind the trades.

“It was more active than normal, but nothing crazy. They are going to market a new product, but they have a lot of products,” he said.

Mentioned in this article:

Central European Media Distribution Corp. Pink sheets: CEDCQ

Electronic Arts Inc. NYSE: EA

Herbalife Inc. NYSE: HLF

Macquarie Infrastructure Co. LLC NYSE: MIC

Teleflex Inc. NYSE: TFX

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