Valeant bonds shed Monday gains; Horizon Pharma converts slide; AMD firm despite downgrade

By Paul Deckelman

New York, Oct. 20 – Valeant Pharmaceuticals International, Inc.’s bonds may have temporarily escaped the downturn that the troubled Canadian drug maker’s shares saw on Monday after the company released earnings and outlined changes in its controversial operating strategy – but their luck ran out on Tuesday as the bonds were off across the board in active dealings while its equity carnage only got worse.

Junk market players were meantime puzzled by the implications of the sharp fall, on heavy trading, of the new bond issue from another Canadian pharmaceuticals company, Concordia Healthcare Corp. That $790 million of seven-year notes were seen trading in the mid-90s, just hours after the deal had priced with little fanfare at par – although the debt was said to have been sold to investors by the banks at a discount.

Also in the biotech and pharmaceuticals sector, Horizon Pharma plc’s convertibles slid by multiple points on a damaging news report news report about the Irish company’s pricing policies for one of its key drugs.

Away from the pharmaceutical and biotech realm, Chesapeake Energy Corp.’s bonds were sharply lower in busy trading Tuesday against a backdrop of continually declining crude oil prices. Other sector names seen off included Linn Energy LLC and American Energy-Permian Basin LLC – ahead of the latter company’s upcoming five-year note issue.

Standard & Poor’s lowered the credit ratings of Advanced Micro Devices Inc. But the computer-chip manufacturer’s bonds were seen having firmed on the session, although volume was light.

Valeant trades off

A trader said that “a name that was active yesterday [Monday] was active today [Tuesday] to the downside around 2 points” – Valeant Pharmaceuticals’ 6 1/8% notes due 2025.

Those bonds had firmed by about ¼ point on Monday to 96 bid, on brisk volume of more than $16 million., while its 5 7/8% notes due 2023 had done even better – up 9/16 point to 96¼ bid, with more than $18 million traded, even as the Laval, Quebec-based specialty pharmaceuticals company’s New York Stock Exchange-traded shares had plunged by nearly 8% on three times their normal volume.

But on Tuesday, another trader said, “the stock got clobbered again today, down 17 bucks to $146.”

He said the 6 1/8s were “down maybe 1½ points and were pretty active.” He saw them at 94½, down from 96 on Monday.

Yet another trader located those bonds at 94¾ bid Tuesday, down 1½ points, with over $35 million traded.

Valeant’s 7½% notes due 2021 were down 5/8 point, ending at 102 3/8 bid, with more than $16 million traded.

New Concordia notes plunge

Another Canadian pharmaceutical company having its troubles was in the spotlight on Tuesday, as Concordia Healthcare priced $790 million of 9½% notes due 2022 at par – and those bonds ended the day down by 4 to 5 points from that issue price.

A trader said that the Oakville, Ont.-based biotech company’s new deal “was one of the big names that traded today,” with over $87 million of those notes having changed hands, making it the busiest purely junk-rated credit of the day.

He saw the bonds trading around the 96 bid level – well down from the par level at which that deal had priced earlier.

He opined that “this was a kind of broken deal, I think – a broken bridge loan. Goldman [Sachs, the left-side bookrunner] was on the hook for it, so they had to re-market it,” even if it meant selling the bonds at a deep discount.

“That’s what happens sometimes.”

A second trader saw those bonds “straddling” 96, and remarked “I don’t know what the heck happened there” to make those new bonds trade as low as they did.

He said that after the bonds’ pricing had been announced – which was the first that many market participants even heard that the pricing had taken place, since it had not been expected for Tuesday’s session – the bonds initially traded around 97½, before dropping back down to 96.

“That doesn’t make any sense,” a third trader said as he quoted the bonds gyrating around between 95 and 97¾, seeing a final print at 95¾.

He theorized that the underwriters “just stuffed the accounts,” making them take the paper – and those buyers, in turn, got out of it as soon as they could, pushing it down further.

“All the Canadian guys are probably just puking it up,” he graphically added.

Not helping matters, he further said, was the fact that “it’s biotech – what do you expect?”, given the recent woes in the biotech and pharmaceutical industries, with politicians in the United States including, but not limited to, presidential candidate Hillary Clinton loudly denouncing Big Pharma for alleged overpricing of many medications. Meanwhile, sector peer Valeant disclosed that it was on the receiving end of subpoenas from federal prosecutors in Boston and New York, seeking information about its pricing policies.

“Everyone is beating up on the biotechs.”

While the new bonds were heading downward, Concordia’s existing 7% notes due 2023 were heading in the opposite direction, with a market source locating those bonds at 85¾ bid, up 1 point on the day, on volume of more than $39 million.

A second trader called the latter bonds up 2 points on the day, around the 87 bid mark.

One of the traders noted that “the yield on the new bonds is higher than on the old ones” – about 10.4% on the new issue, versus about 9.75% on the established bonds.

However, he said, the older bonds “are trading about 7, 8 points or more cheaper – and people just love a discount.”

Horizon Pharma converts plunge

The convertibles market also saw biotech and pharmaceutical paper get whacked down on Tuesday, notably Horizon Pharma’s 2.25% converts, which dropped into the upper 80s range from the upper 90s, while its shares skidded 20% after a damaging news report on pricing of the company’s Duexis pain reliever drug and Prescriptions Made Easy program.

A trader saw the paper at 88.5 to 88.875 with the stock down at about $15.15.

The fall was roughly in line with shares, which closed lower by $3.81, or 20%, to $15.26.

“I would say they moved in a straight line down with the stock,” the trader said.

Duexis is a combination of two drugs, which are generic versions of Motrin and Pepcid, but with a pricetag of $1,500 per month, according to the New York Times report.

But Horizon has been able to increase sales of this drug, even though insurers have clamped down on paying for it, through its PME program, which keeps regular pharmacies, which may have steered patients to other cheaper alternatives, out of the mix.

Under the Irish pharmaceutical company’s program, doctors send prescriptions directly to mail-order specialty pharmacy outlets affiliated with Horizon. The program averts the hazard of regular pharmacies switching patients to generic components or even to over-the-counter versions.

Chesapeake leads energy issues lower

Away from the pharmaceutical sector, traders saw Oklahoma City-based oil and natural gas operator Chesapeake Energy’s paper lower, despite a lack of specific fresh news out about the company.

Its 5 ¾% notes due 2023 ended just under 69½ bid, down 1 13/16 points on the day, with more than $17 million traded.

Its 4 7/8% notes due 2022 lost 7/8 point to close at 68¼ bid, with more than $11 million traded.

Other energy credits were also seen on the downside, against a backdrop of falling crude oil prices, with West Texas Intermediate for November delivery down 34 cents, or 0.7%, on the New York Mercantile Exchange, ending at $45.55 per barrel. That drop follows Monday’s plunge of $1.37, or 2.9%.

A trader saw Linn Energy’s 7¾% notes due 2021 ending down 1 5/8 points at 33 bid.

American Energy-Permian Basin – in the process of shopping a new bond deal around – saw its existing 8% notes due 2020 fall by 3½ points to close at 85½ bid, with over $17 million traded.

AMD shrugs off S&P downgrade

Advanced Micro Devices’ bonds held their own on Tuesday despite a ratings downgrade from Standard & Poor’s.

The Sunnyvale, Calif.-based computer-chip maker’s 6¾% notes due 2019 gained 2½ points to close at 76½ bid, while its 7% notes due 2024 were seen up by 1 point at 68 bid.

However, volume was light, with just a handful of round-lot trades for each issue.

S&P said it lowered its corporate credit rating on AMD to CCC+ from B- previously.

The outlook is negative.

The agency also lowered its issue-level rating on Advanced Micro’s senior unsecured notes to CCC from B- and revised the recovery rating to 5 from 4. The 5 recovery rating indicates an expectation for modest recovery (10%-30%; lower half of the range) in the event of a payment default.

“The downgrade reflects our expectation that AMD will experience a more gradual return to revenue growth, ongoing competitive challenges to restore operating profitability, and more severe operating losses and negative free cash flow through 2016 than we had previously forecast, despite recent improvements to its liquidity,” S&P credit analyst John Moore said in a news release.

-Rebecca Melvin contributed to this review

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