Convertibles little changed ahead of the Fed; American Realty drops; Synergy prices deal

By Rebecca Melvin

New York, Oct. 29 – U.S. convertibles were little changed amid lighter volume on Wednesday as equities fluctuated ahead of the latest Federal Reserve statement, which unveiled the end of its bond-buying program as expected and stood pat on near 0%, short-term interest rates for a considerable time.

U.S. Treasuries sold off on the news. Stock indices ended fractionally lower.

The convertibles session was “uneventful,” a New York-based convertibles trader said, with tepid volume and pricing unchanged.

“A fair amount of it was due to the Fed,” the trader said, indicating that market players avoid taking positions ahead of the policy news.

American Realty Capital Properties Inc.’s convertibles were among the most actively traded issues in the market as those bonds sold off sharply along with shares of the New York-based real estate investment company after the company announced accounting errors and the resignations of its chief financial officer and chief accounting officer due to allegedly intentional accounting mistakes.

InvenSense Inc. also took a dive after the San Jose, Calif.-based maker of motion tracking devices in consumer electronics reported a fiscal second-quarter earnings miss and lowered current-quarter results as well, citing lower product pricing.

The InvenSense report was followed by multiple downgrades, and the 1.75% InvenSense convertibles were indicated down to 95.25 from about 113. InvenSense shares fell $5.40, or 25%, to $16.08.

Moving to the upside were WellPoint Inc.’s 2.75% convertibles due 2042, which traded up a couple of points to about 169 after the health care benefits company posted quarterly earnings that beat estimates and raised its outlook for full-year earnings, citing a growing membership base. But revenue missed estimates. Shares gained 1.8%.

WellPoint is one of the market’s longer-dated issues, and its valuation came in in the convertibles market sell-off starting at the end of the summer.

Synergy Pharmaceuticals Inc.’s newly priced 7.5% convertible bonds due 2019 were not heard in trade after the New York-based biopharmaceutical company priced an upsized $175 million of the senior notes ahead of the market open.

It was surmised that the offering was a bought deal involving only a few investors.

Also in the primary market, Fiat Chrysler Automobiles NV said it plans to price $2.5 billion of mandatory convertibles as well as common shares in registered offerings by the end of the year in conjunction with the spinoff of its Ferrari Spa division.

Overall, the market was stuck in neutral: “it didn’t seem better for sale or better to buy,” a New York-based trader said.

The Federal Open Market Committee statement was by and large as expected, although there was some surprise at its upgraded assessment of the U.S. job market and its downside inflation expectations.

The Fed said that slack in the U.S. labor market is gradually diminishing.

American Realty drops sharply

American Realty’s 3% convertibles due 2018 fell to the lower 90s from the upper 90s, according to Trace data.

American Realty’s 3.75% convertibles due 2020 were down nearly 10 points to 91.4, Trace reported.

American Realty shares fell as much as 37% intraday before paring losses for a $2.38, or 19%, drop to $10.00.

The company said certain amounts related to non-controlling interests were incorrectly included in adjusted funds from operations, and chief financial officer Brian Block and chief accounting officer Lisa McAlister have resigned because the accounting mistakes were not corrected.

American Realty owns and acquires single-tenant freestanding commercial real estate.

Its convertibles have traded up in recent weeks along with a climb in the underlying shares since early this month.

Synergy prices upsized deal

Synergy’s newly priced 7.5% convertibles due 2019 were not heard in trade after pricing in an overnight deal that was upsized to $175 million from up to $150 million.

Synergy shares jumped 10% to $3.42.

“I didn’t hear anyone really cared about it. You couldn’t get a borrow on the common,” a New York-based trader said.

A second trader, based in Connecticut, said, “This was a wall crossed deal and probably put away with a small group of accounts.”

BofA Merrill Lynch was the bookrunner of the Synergy deal, which was upsized from up to $150 million and priced at the fixed price points that were talked, including an initial conversion price of $3.11.

The Rule 144A deal has a $25 million greenshoe. The deal was talked at launch for up to $150 million in size with a $22.5 million greenshoe.

The notes are non-callable for life with no puts. Settlement will be in stock.

There is change-of-control protection and dividend protection via a conversion ratio adjustment for any dividends.

Proceeds will be used to fund the ongoing clinical development of plecanatide, with any remaining proceeds for working capital and other general corporate purposes.

Synergy is a New York-based biopharmaceutical company focused primarily on the development of drugs to treat gastrointestinal disorders and diseases.

Mentioned in this article:

American Realty Capital Properties Inc. Nasdaq: ARCP

Fiat Chrysler Automobiles Nasdaq: FCAU

InvenSense Inc. Nasdaq: INVN

Synergy Pharmaceuticals Inc. Nasdaq: SGYP

WellPoint Inc. NYSE: WLP

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