Teva bonds improve on lower shares; Allergan mandatory drops; Chesapeake extends gains

By Rebecca Melvin

New York, May 6 – Teva Pharmaceutical Industries Ltd. was a focus in the convertibles space on Friday as the Teva 0.25% convertibles, or C bonds, traded lower outright but higher on a swap basis amid lower shares for the Petach Tikva, Israel-based pharmaceutical company, a New York-based trader said.

“The Teva Cs are ripping,” the trader said, attributing the gain to outright buyers.

Teva is scheduled to report quarterly results next week.

But Allergan plc’s listed mandatory convertibles traded down in active trade amid outright sellers, a New York-based sellsider said.

Traders were also eyeing Endo International plc, which is not a convertibles issuer, as the common stock plunged 40% after the Dublin-based specialty pharmaceutical company reported a disappointing quarterly loss and cut full-year guidance.

Chesapeake Energy Corp.’s convertibles extended gains, moving up another few points on Friday after a 2- to 3-point increase on Thursday when the Oklahoma City-based energy company posted earnings and announced $470 million in asset sales.

But Whiting Petroleum Corp.’s convertibles traded weakly onto the bid side, or at about 70.25 versus a share price of $10.70 for the Denver-based energy exploration and production company.

Atlas Air Worldwide Holdings Inc.’s 2.25% convertibles due 2022 also edged higher again after spiking on Thursday after the Purchase, N.Y.-based outsourced aircraft and aviation services company posted better-than-expected earnings and announced a pact to provide support for Amazon e-commerce deliveries.

But Herbalife Ltd.’s convertibles were quiet despite a significant jump in the shares of the Cayman Islands-based weight management and nutrition company.

“The stock is up $5.00 and the convert didn’t trade,” a sellsider said regarding the Herbalife 2% convertibles. “I would have thought you would have seen a lot of outright selling here, but guys are holding on to them.”

In the broader markets, equities reversed early losses in an afternoon rally despite the day’s disappointing jobs report.

“I think it’s just a relief rally. There is no rhyme or reason for it,” a sellsider said. In convertibles, there was “no rotation that we saw.” Instead, there was more or less “capitulation on earnings. Every name that had earnings today was lower. Things were definitely better for sale,” a sellsider said.

The Labor Department said that non-farm payrolls rose by 160,000 jobs last month and the unemployment rate held steady at 5%. That was lower than the 195,000 jobs to 200,000 jobs that many economists had been expecting for April, and the lowest increase in many months.

The disappointing report led many market observers to push out their forecasts for when the next Federal Reserve rate hike will occur. Many were taking a June rate rise off the table.

Teva up on swap

Teva 0.25% convertibles due 2026 were quoted at 125.5 bid, 126 offered, versus a share price of $50.50. The bonds were last about 130 in previous trade.

Teva American depositary receipts fell $3.60, or 7%, to $50.27, and the bonds were seen up 2 points, a trader said.

Outright buying interest fueled the strength in trading of this bond.

As for the pharmaceutical sector, many were watching Endo International. Its shares fell $10.42, or 29%, to $16.17. The company said it lost $133.9 million, or 60 cents per share, for the first quarter, compared to a loss of $75.7 million, or 43 cents per share, in the year-earlier period.

Adjusted earnings were $1.08 per share, which was a few cents better than many analysts expected, however.

Endo reported revenue of $963.5 million, which was up from $714.1 million in revenue in the year-earlier period, but below estimates for revenue of $964.4 million.

Looking ahead, the company cut its full-year estimates to $4.50 per share to $4.80 per share for earnings, which was lower than $5.85 to $6.20 per share previously expected; and revenue was cut to $3.87 billion to $4.03 billion, which was down from $4.32 billion to $4.52 billion previously expected.

Analysts had been expecting earnings of $5.68 per share on revenue of $4.3 billion.

The company blamed its lowered forecast on increasing competition and regulatory delays.

Chesapeake extends gains

The Chesapeake convertibles extended gains on Friday despite a pullback in the common shares.

“Guys are thinking that they are going to come back and buy these,” a sellsider said about the company’s intensions for the convertible bonds.

Chesapeake’s 2.5% convertible notes due 2037 were seen up at 91 from 87 to 87.50. Shares of the company pulled back to $4.59 from $5.71, or by about 20%.

Buoying the debt is the company’s announcement that it will sell $470 million in assets in Oklahoma to Newfield Exploration Co. as part of its plans to shore up finances, and it expects further divestitures during the second and third quarters

Mentioned in this article:

Allergan plc NYSE: AGN

Allergan plc mandatory NYSE: AGN-PA

Altas Air Worldwide Holdings Inc. Nasdaq: AAWW

Chesapeake Energy Corp. NYSE: CHK

Endo International Inc. Nasdaq: ENDP

Herbalife Inc. NYSE: HLF

Teva Pharmaceutical Industries Ltd. Nasdaq: TEVA

Whiting Petroleum Corp. NYSE: WLL

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