New Lexicon trades down; Qihoo unchanged after China rate cut; LGI Homes up on week

By Rebecca Melvin

New York, Nov. 21 – Lexicon Pharmaceuticals Inc.’s new 5.25% convertibles traded down Friday after The Woodlands, Texas-based biopharmaceutical company priced an upsized $80 million of the seven-year senior notes at the cheap end of talk.

“Lexicon traded terribly; they dropped down to 97 immediately,” a New York-based trader said.

He attributed the poor debut to the small deal size and illiquidity and general illiquidity in the convertibles market currently.

Lexicon’s shares were down sharply as well, ending 5.5% lower at $0.95 after $50 million shares of common stock priced concurrently with the $80 million bond deal at $1.005 each.

LGI Homes Inc.’s 4.25% convertibles, which priced earlier this week, were seen at 101.25 bid, 101.75 offered at the close, which represented a dollar-neutral gain since issue of a little more than 2 points, a syndicate source said.

Elsewhere, Qihoo 360 Technology Co. Ltd. was active but unchanged in terms of pricing. The Chinese convertible name was pulled into trade after China unexpectedly cut interest rates and boosted China shares and the broader markets. The move sparked limited activity in the convertibles of some Chinese companies. Those issues generally lagged their underlying stocks.

Other China convertible names that were seen changing hands included E-House (China) Holdings Ltd., SouFun Holdings Ltd. and YY Inc. But they weren’t trading that actively, a New York-based trader said.

“A couple traded,” the trader said of YY. “But it was not that material. The activity didn’t flow through to the U.S. that much.”

YY closed at 98.5 versus the underlying share price of $74.39, the trader said.

Overall, the China space in convertibles was deemed to have lagged equities.

China stocks gained on what was deemed as essentially good news.

The People’s Bank of China said it cut its benchmark one-year loan rate by 0.4 percentage point to 5.6%. It also cut its benchmark one-year deposit rate by 0.25 percentage point to 2.75%.

China’s unexpected interest rate cuts will likely help the country’s ailing property market, which struggles with falling prices and oversupply. The last time China cut lending rates was July 2012.

Primary sees small deals

Five new deals priced this past week in the U.S. convertibles primary market for base-deal proceeds of $605 million. A sixth deal was canceled.

One trader thought that the week would be more or less representative of the rest of the year.

“No game changers are expected, in terms of net issuance levels for the year,” he said.

“We are going to get a little more, but not anything substantial. There may be some deals Monday or Tuesday,” he said.

Although after that, additional issuance next week is unlikely as it is a holiday-shortened week in observance of Thanksgiving.

New Lexicon trades down

Lexicon’s new 5.25% convertibles due 2021 traded at par out of the chute and dropped quickly to 97. The new bonds were later quoted at 97 bid, 99 offered.

Lexicon shares ended down 5.5 cents, or 5.5% at $0.95.

“We’re in an illiquid period and it’s an illiquid bond, so it’s not an ideal situation,” a New York-based trader said.

Lexicon’s performance was also a contrast to LGI Homes, which was a small, $75 million deal that priced at the beginning of the week.

“But that was a different story given that it is a homebuilder with a lot of growth and deep fundamentals. You can get your head around a homebuilder easier than a biotech, which can be zero or double,” a trader said.

Lexicon, a biotechnology company with clinical-stage programs for drugs to treat various diseases including diabetes, priced $80 million of seven-year convertibles, which was upsized by $5 million.

Pricing came at the cheap end of talked terms, which was for a 4.75% to 5.25% coupon and a 20% to 25% premium.

Lexicon also sold $50 million of common shares, or 49,751,244 shares at $1.005 per share.

J.P. Morgan Securities LLC and Goldman Sachs & Co. were joint bookrunners of both offerings.

Proceeds will be used for clinical development of the company’s drug candidates and other non-clinical research and development. Proceeds may also be used to acquire or invest in complementary products and technologies or for general corporate purposes.

Qihoo issues trade

Qihoo’s sister convertibles “traded up, but not a lot,” a New York-based sellsider said early Friday.

The Qihoo 0.5% convertibles due 2020, or A tranche, was 90.5 bid, 91.25 offered, the sellsider said. That level was up by about 0.5 point on an outright basis.

The bond ended at roughly 91.5, a second trader said at the end of the session.

Qihoo’s 1.75% convertibles due 2021, or the Bs, were quoted at 88 bid, 88.75 offered and ended at 89.5.

The short-dated Qihoo 2.5% convertibles due 2018 were 101 and change, which was up 1.8 points, according to Trace data. Those ended at 101

Shares of the Chinese internet company were up 4.3% in the early going and ended at $69.36, which was up $1.81, or 2.7%.

“The market was up a lot, but convertibles weren’t up that much relative to equity,” a trader said.

The trader called Qihoo unchanged on the day.

The China rate cut was “more of shocker than anything,” the trader said.

Mentioned in this article:

E-House (China) Holdings Ltd. NYSE: EJ

LGI Homes Inc. Nasdaq: LGIH

Lexicon Pharmaceuticals Inc. Nasdaq: LXRX

Qihoo 360 Technology Co. Ltd. NYSE: QIHU

SouFun Holdings Ltd. NYSE: SFUN

YY Inc. Nasdaq: YY

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