FXCM bumps up on positive earnings; Herbalife adds outright, unchanged dollar neutral

By Rebecca Melvin

New York, March 13 – FXCM Inc.’s convertibles gained on Friday after the beleaguered New York-based foreign exchange services company reported better-than-expected fourth-quarter results.

“They opened strong, and there was a slow grind higher,” a New York-based trader said of the FXCM convertibles. The bonds ended at about 75.

Elsewhere, Herbalife Ltd.’s convertibles moved up on an outright basis but were unchanged on a dollar-neutral basis as shares of the Cayman Islands-based nutrition company popped in response to reports of a federal probe involving Bill Ackman, Ackman associates and potential manipulation of Herbalife stock.

Depomed Inc.’s convertibles weakened on Friday, contracting between 0.5 point to 1 point or 2 points on the back of news of the company’s $575 million financing deal, inked for the previously announced acquisition of Depomed’s U.S. rights of a Janssen Pharmaceuticals franchise.

Synergy Pharmaceuticals Inc. was a notable name this past week. The Synergy convertibles surged along with underlying shares of the New York-based pharmaceutical company early in the week into Wednesday before pulling back slightly. On Friday, the Synergy bonds were quoted at 2 points over parity, which is 113.67, according to a convertibles analyst.

Overall, the health care/biotech space was better to buy but wasn’t overly active, the analyst said.

The tone of the convertibles universe overall was similar: “It’s pretty quiet,” a trader said.

Equity markets tanked again on Friday, although they pared losses at the end of the session, with the S&P 500 stock index closing down 12.55 points, or 0.6%, to 2,053.40; the Dow Jones industrial average falling 145.91 points, or 0.8%, to 17,749.31; and the Nasdaq stock market ending off 21.53 points, or 0.4%, at 4,871.76.

Earlier, the S&P 500 stock index was down 22 points, or 1%.

Investors were concerned about the strong dollar and the impact of lower oil prices amid an ongoing supply glut on corporate profits and expenditures.

FXCM adds a couple of points

FXCM’s 2.5% convertibles due 2018 traded on Friday at 74.5 bid, 75.5 offered. The underlying shares fell 43 cents, or 20%, to $2.58.

Previously, the bonds had been 71 bid, 72 offered.

“They were up a couple of points,” a trader said.

FXCM was bailed out by Leucadia National Corp. in January when it was swamped by client losses related to the Swiss National Bank’s action to remove its cap on the value of the Swiss franc.

In its quarterly results reported late Thursday, FXCM posted a profit of $15.8 million, or 35 cents a share, for the quarter ended Dec. 31, versus its year-earlier profit of $2.97 million, or 8 cents a share.

Excluding items, profit was 20 cents a share, and revenue rose 19% to $134.7 million. Analysts polled by Thomson Reuters expected earnings of 17 cents a share and revenue of $129.9 million.

Herbalife flat dollar neutral

Herbalife’s 2% convertibles due 2019 traded up nearly 3 points to 79.3, according to Trace data.

Herbalife shares were up $4.33, or 13%, to $37.60.

The bonds were unchanged on a dollar-neutral basis, a trader said.

Federal prosecutors and the Federal Bureau of Investigation have questioned people hired by Bill Ackman of Pershing Square Capital Management LP. Ackman has bet against Herbalife, calling the company a pyramid scheme.

Depomed weaker

Depomed’s convertibles were weaker on Friday and came in 0.5 point or as much as 1 point or 2 points, sources said. The bonds were quoted at 142 bid, 142.75 offered versus an underlying share price of $24.88.

Later they were quoted at 142 versus a share price of $24.04.

On a 75% delta, the bonds were in 0.5 point, an analyst said.

Depomed’s convertibles “came in a touch off of the financing,” the analyst said, referring to a seven-year loan with Deerfield and Pharmakon Advisors LP for Depomed’s U.S. rights to the NUCYNTA franchise from Janssen.

The loan will be secured by Depomed’s assets and bear interest at 9.75% over three-month Libor with a floor of 1% and subject to certain caps.

The loan and acquisition are expected to close in April.

The NUCYNTA franchise includes NUCYNTA extended release tablets for the management of pain, including neuropathic pain associated with diabetic peripheral neuropathy.

A convertible analyst said regarding the financing, “We were scratching our heads, wondering why they didn’t do a convertible deal instead of the deal they did, which was expensive in our book.”

Synergy rallies up

Synergy’s 7.5% convertibles due 2019 rallied from 101.375 bid, 103.375 offered versus a share price of $3.11 early Monday to 119.5 bid, 122.5 offered versus a share price of $3.61 on Wednesday, a trader said.

The bonds pulled back a bit from that level by Friday, with shares closing at $3.55. But they were still about 2 points over parity, an analyst said.

The stock has no borrow so this is a fundamental story, an analyst said. The company has data coming out in May and June, and smart fundamental holders are causing the stock to start to move.

Depending on the data coming out in the next several months, “we think the stock should double,” the analyst said.

Mentioned in this article:

Depomed Inc. Nasdaq: DEPO

FXCM Inc. Nasdaq: FXCM

Herbalife Ltd. NYSE: HLF

Synergy Pharmaceuticals Inc. Nasdaq: SGYP

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