Liquidity wanes ahead of holiday; Finisar active; Sucampo adds deal to calendar; Jakks drops

By Stephanie N. Rotondo

Seattle, Dec. 19 – There was limited liquidity in the convertible bond market on Monday, and a trader speculated that the trend would continue.

The market is expected to quiet down ahead of Christmas. Friday will be an early close.

At mid-morning, total trading volume was about $33 million, the trader said. Of that, about $8 million was from Finisar Corp.’s $500 million of 0.5% convertible notes due 2036, a deal that priced on Friday.

The remaining volume was “spread out over 30 names,” the trader added.

As for Finisar, it was trading at 101.5 in early dealings. The issue was pegged in a 101.175 to 101.75 range by the bell.

That was about unchanged from Friday’s levels.

As for the underlying equity, it was up 21 cents at $31.38.

The deal was upsized from $450 million, with an initial conversion premium of 30%. Pricing came at the cheap end of talk for a 0.25% to 0.5% coupon and a 35% to 40% initial conversion premium.

Given the upcoming holiday, it was surprising that a new deal was added to the week’s calendar: a $225 million offering of five-year convertible senior notes from Sucampo Pharmaceuticals Inc.

The yield is talked at 2.75% to 3.25%, with an initial conversion premium of 25% to 30%.

Leerink Partners is running the books.

The Rockville, Md.-based biopharmaceutical company intends to use proceeds, along with cash on hand, to repay amounts due under a senior secured credit facility, including all accrued interest and a prepayment premium. Any remaining funds will be used for general corporate purposes.

Jakks takes a hit

A trader was surprised that none of Jakks Pacific Inc.’s convertibles were moving much early in the session, as the underlying equity dropped over 30% for the day.

“The stock is way off,” the trader said, noting that “lower guidance” was the culprit.

Later, another market source saw the 4.875% convertible notes due 2020 dropping nearly 14.5 points to around 79.5, while the 4.25% convertible notes due 2018 waned almost 13.5 points to 86.75.

The company’s shares meantime declined $2.30, or 32.62%, to $4.75.

Late Friday, the toy maker cut its 2016 profit and sales guidance. The company now expects sales of $700 million, down from previous estimates of $755 million. Earnings per share is forecast to be 1 cent to 5 cents, down from 56 cents.

The company said the lowered forecast was largely due to lower-than-expected sales from key product lines.

In a note out Monday, Linda Bolton Weiser, an analyst at B. Riley, cut the stock price target to $5.00 from $8.00 but maintained her neutral rating. This was due to the involvement of activist investors, which could result in moves to help improve the company’s performance.

However, she also noted that the 2018 convertible issue could cause problems for the company if Christmas 2017 brings another disappointment.

Mentioned in this article:

Finisar Corp. Nasdaq: FNSR

Jakks Pacific Inc. Nasdaq: JAKKS

Sucampo Pharmaceuticals Inc. Nasdaq: SCMP

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