Morning Commentary: Anacor bonds contract on swap after takeout news; SandRidge bankruptcy eyed

By Rebecca Melvin

New York, May 16 – Anacor Pharmaceuticals Inc.’s 2% bonds jumped on an outright basis early Monday but fell on a dollar-neutral, or hedged, basis after news that Pfizer Inc. said it would buy the Palo Alto, Calif.-based biopharmaceutical company for about $4.5 billion in cash.

The takeout price is for $99.25 a share and caused Anacor shares to surge $34.99, or 55%, to $99.02 in early trading.

On a swap basis, the Anacor 2% convertibles contracted 3.5 points to 5 points, but most arb players were down closer to the 5-point loss amount, a Connecticut-based trader said.

“ANAC didn’t make one coupon payment and is being taken out,” a second trader said.

Anacor priced the $287.5 million convertible deal about six weeks ago. The bonds had surged to around 120 from the get go amid speculation that it was an acquisition target after Pfizer and Allergan plc nixed their planned tie up following a U.S. tax rule change that reduced the advantages of corporate tax inversions.

Anacor’s key product is crisaborole, a treatment for eczema that is under U.S. regulatory review.

Elsewhere, Oklahoma City-based SandRidge Energy Inc., an oil and natural gas company, said it filed for Chapter 11 in the U.S. Bankruptcy Court for the Southern District of Texas to carry out a prearranged reorganization with creditors holding more than two-thirds of its $4.1 billion of funded debt. The news didn’t faze convertibles traders, sources said.

The SandRidge “convertibles have been below 10 for a while now,” a trader said.

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