Morning Commentary: New XenoPort pops; Performant shares getting crushed; Yahoo! improves on hedge

By Rebecca Melvin

New York, Jan. 29 – XenoPort Inc.’s newly priced 2.5% convertibles traded up in the early going Thursday, according to Trace data, after the Santa Clara, Calif.-based biopharmaceutical company priced $100 million of the seven-year senior notes in an overnight deal with a 22.5% premium to the underlying shares.

The XenoPort 2.5% convertibles were seen changing hands at 105.5, according to Trace data. Shares were up fractionally at $8.82.

But while the price pop was impressive, the deal, which was priced via bookrunner Credit Suisse Securities (USA) LLC, did not appear to be trading widely. Several sources queried hadn’t seen the deal in trade.

A second convertibles deal in the market that was even smaller wasn’t seen to have priced yet, as shares were crushed. Performant Financial Corp. launched a deal for $80 million of five-year convertible bonds in a registered offering that was coming together with about $50 million of common stock.

Performant Financial shares plunged $1.66, or 28%, to $4.21 in early trade.

Back in established issues, Yahoo! Inc.’s convertibles were down sharply outright, but better on a dollar-neutral, or hedged, basis, a New York-based trader said.

The Yahoo! 0% convertibles traded at 106.5 versus an underlying share price of $42.50. That was down from 110 late Wednesday and after starting Wednesday at about 114. But it was better on a dollar-neutral basis by 1.25 points.

Yahoo! shares fell $3.19, or 7%, to $43.20.

“It’s all about Alibaba,” the trader said.

Alibaba, the Chinese e-commerce company, reported disappointing revenue in its quarterly results late Wednesday, but its quarterly earnings were better than expected. Alibaba shares were down 10% at late morning. Yahoo! has a stake in Alibaba that it is spinning off into a separate company.

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