Amarin sinks on FDA panel rejection; Arris eyed on redemption notice; Aegean Marine on tap

By Rebecca Melvin

New York, Oct. 17 - Amarin Corp. plc's convertibles plunged on an outright basis and contracted on a dollar-neutral, or hedged, basis if holders were on at light delta after a federal regulatory panel voted against recommending expanded use of the Dublin-based specialty drugmaker's Vascepa fish-oil derived drug to lower triglycerides.

The Amarin bonds trade on swap, but "if you weren't on a heavy delta, you did not do well," a New York-based trader said.

Arris Group Inc.'s 2% convertible senior notes due 2026 were steady to lower on an outright basis but were trading with 1.5 points of premium over parity after the company announced that it is calling its $232 million outstanding of these bonds for cash at par plus interest on Nov. 15. Holders can convert their bonds into shares of the Suwanee, Ga.-based video and broadband technology company until Nov. 15.

Peabody Energy Corp.'s 4.75% convertibles due 2066 firmed up a point or so after the St. Louis-based coal mining company reported a quarterly loss but adjusted earnings that beat estimates and guided higher for full-year 2013 earnings.

Also in focus was a new deal, albeit a small one, from Aegean Marine Petroleum Network Inc. The Athens, Greece-based marine fuel logistics company planned to price $75 million of five-year convertible senior notes after the market close.

Equities ended mostly higher, extending gains after Wednesday's relief rally on a last-minute deal among U.S. lawmakers to raise the debt ceiling and reopen the government after a two-week partial shutdown. However, the convertible debt market was focused for the most part on company-specific news headlines.

The S&P 500 stock index added 11.61 points, or 0.7%, to 1,733.15, and the Nasdaq stock index gained 23.71, or 0.6%, to 3,863.15, but the Dow Jones industrial average slipped 2.18 points to 15,371.65.

Amarin drops

Amarin's 3.5% exchangeables due 2032 fell to 72 bid, 80 offered, which was down from about par, market sources said. On a dollar-neutral, or hedged, basis, the exchangeables contracted unless holders were on a very heavy delta.

A second trader said they traded at 76 bid, 78 offered versus a stock price of $2.10. The paper had been near par before the news, he said. But it was difficult to tell exactly where they were because they hadn't traded often.

If hedged players were on a light delta below about 65%, they lost money. And one trader said the bonds came in 5 or 6 points.

On a 65% delta, holders probably broke even on a dollar-neutral basis, a second trader said.

The bonds were trading pretty actively even though the bid-ask spread was wide.

Shares of the Dublin-based developer of drugs to treat central nervous system disorders slumped $3.16, or 61%, to $2.01.

The securities slumped after news that a U.S. Food and Drug Administration advisory committee voted against approval of its supplemental New Drug Application for its fish-oil derived cholesterol drug Vescepa.

The FDA's endocrinologic and metabolic drugs advisory committee voted 9-2 late Wednesday against approving Vascepa for use as an adjunct to diet for the treatment of adults with high triglycerides with mixed dyslipidemia.

Arris slips outright on call

Arris' 2% convertibles went to about 104.25 from about 105 on Thursday, according to Trace data.

But the securities were trading with 1.5 points of premium over parity versus an underlying share price of $16.54, a New York-based trader said of the bonds.

"People are hoping the stock goes lower so they can buy the stock back and 'create' the bonds under par. Using a 70% delta, if the stock goes down $1.00, then they own them around par," the trader said.

On Thursday, the Arris shares slipped 38 cents, or 2.4%, to $16.38.

Arris announced that the $232.0 million outstanding principal amount of its 2% convertible senior notes will be redeemed Nov. 15. On the redemption date, the redemption price will become due and payable upon each note to be redeemed, unless a holder has validly exercised either the repurchase option or the conversion option.

Peabody adds

Peabody's 4.75% convertibles due 2066 traded at 83 bid, 84 offered, which was up from 82 bid, 83 offered previously. A trade occurred late in the session at 83.75, according to Trace data.

Peabody shares surged in the early going by 9% but pared gains to end the day up 70 cents, or 3.9%, at $18.59.

The St Louis-based coal producer swung to a third-quarter loss, but excluding items, adjusted earnings were better than expected, and the company also guided higher for its full year.

The company lost $26.1 million, or 10 cents a share, compared to year-earlier earnings of $42.9 million, or 16 cents a share. Excluding discontinued operations and other one-time items, adjusted earnings were 5 cents a share, which was below last year's 53 cents per share but better than the 4 cent adjusted loss that analysts were expecting.

Revenue dropped 13% to $1.8 billion but was slightly better than $1.78 billion than analysts expected.

Prices for thermal coal are low as utilities shift to cheaper natural gas. Peabody has also seen a decline in global prices for metallurgical coal.

Looking ahead, Peabody has raised its full-year earnings per share outlook from a previous range of a loss of $0.16 to a profit of $0.09 to a new range of $0.27 to $0.45.Full-year sales are expected to range from 245 million to 255 million tons, which is up from an estimated range of 230 million to 250 million tons.

Aegean on tap

Aegean Marine plans to price $75 million of five-year convertible senior notes after the market close Thursday that were talked to yield 4% to 4.5% with an initial conversion premium of 30% to 35%, according to a market source.

One trader suggested that the assumptions to make a valuation on the deal would be about 1,000 basis points over Libor and a 38% to 40% vol. He chose the inputs due to the fact that it's a company with a small market capitalization of $514 million and because it is already levered and burning cash.

The registered offering has a greenshoe for up to $11.25 million and was being marketed by bookrunner Jefferies LLC.

The notes will be non-callable for three years and then provisionally callable if shares exceed 140% of the conversion price. There is takeover protection and dividend protection via conversion rate adjustments for dividends above $0.01 per quarter.

Proceeds will be used for general corporate purposes and working capital, including repayment of short-term debt.

Aegean is an Athens, Greece-based marine fuel logistics company.

Mentioned in this article:

Aegean Marine Petroleum Network Inc. NYSE: ANW

Amarin Corp. plc Nasdaq: AMRN

Arris Enterprises Inc. Nasdaq: ARRS

Peabody Energy Corp. NYSE: BTU

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