Dycom lower outright, adds on swap; Clovis eyed for potential drug approval; REITs for sale

By Rebecca Melvin

New York, Aug. 24 – Dycom Industries Inc.’s convertibles were down on an outright basis, but they expanded on a dollar-neutral, or swap, basis on Wednesday after the Palm Beach Gardens, Fla.-based provider of specialty contracting services reported positive quarterly earnings but a disappointing outlook.

On Tuesday, the installer of fiber optic lines said that its organic contract revenue growth was 20% for the quarter, but looking ahead, its recent Goodman Networks acquisition was expected to produce lower revenue in fiscal 2017 than initially anticipated.

Depending on delta, the Dycom bonds looked to have expanded about 0.25 point to 1 point on swap, sources said.

Overall, the convertibles market was seen as mixed on the day with trading concentrated in certain names related to specific news.

Clovis Oncology Inc. was in focus as shares of the Boulder, Colo.-based biotechnology company rose another 5% early Wednesday amid speculation that its ovarian cancer therapy rucaparib has a chance for regulatory approval after the company said that its drug candidate was granted priority review status.

But the Clovis stock faded to a close that was down nearly 3% and the convertibles were lackluster. After not really trading, there was a print at 83.56, which was down from closer to 85 on Tuesday.

“I don’t think we’re going to get any new money into the bonds until there’s something more definite on the cancer treatment, which competes with Tesaro Inc.’s treatment that just had very positive phase 3 data and is used to treat multiple cancers,” a market source said.

There was some outright selling of real estate investment trusts such as Extra Space Storage Inc. and no corresponding action by hedged players. The REIT sector has done well of late and some players were taking profits, a market source said.

An exception to the weak REIT sector was Empire State Realty Trust Inc., which saw its 2.635% convertibles gain about 0.75 point. The positive move was related to speculation that there may be some move among rating agencies toward investment-grade status for the REIT especially after news that the Qatar Investment Authority is buying a minority stake in the REIT for $622 million.

PDC Energy Inc. shares jumped $3.30, or 5.2%, to $66.92 after the Denver-based oil and natural gas exploration and development company said that it planned to do a package of financing and issue at least $600 million of senior notes, convertibles and or common equity to help fund its acquisition of two privately held companies managed by Kimmeridge Energy Management Co. J.P. Morgan Securities LLC is involved in the deal. There were no further details available by Prospect News’ deadline.

Previously, PDC had a $100 million 3.25% convertible bond that matured in May. That paper had a 5.5-year tenor and was sold via Wells Fargo Securities LLC and BofA Merrill Lynch. It was non-callable, and proceeds will be used to fund the acquisition of additional Wolfberry Trend assets in the Permian Basin of West Texas.

“This is positive. Guys know this company, and it is one of the better players in the space,” a market source said.

Dycom expands on swap

Dycom’s 0.75% convertibles due 2021 traded last at 113.52 versus an underlying common stock price of $86.30. That was down about 3 points on an outright basis, but the bond was called up on swap basis, according to a New York-based trader.

They expanded about 0.25 point to one point, depending on delta.

Dycom reported organic contract revenue growth of 20% for the quarter. But looking ahead, the company, which lays fiber optic lines, said that the recently acquired operations of Goodman Networks are now expected to produce lower revenue in fiscal 2017 than initially anticipated but higher EBITDA margins sooner than initially anticipated.

Clovis quiet as shares swing

Clovis’ 2.5% convertibles due 2021 didn’t trade actively on Wednesday but did change hands in the 83.75 bid, 84.75 offered range, a trader said. The bonds ended Tuesday at nearly 85, which was up from the mid-70s previously.

“Clovis is one to watch. If you look at the one-year chart, it is still down after an unfavorable ruling six months ago took the stock down. But the upside case is to get back to that level if the approvals can happen,” a New York-based trader said.

Last year regulators asked Clovis for more clinical data on its rociletinib lung cancer treatment, and the stock plunged. But on Wednesday Clovis announced that the FDA has accepted its New Drug Application for accelerated approval of rucaparib and granted priority review status to the application with a prescription drug user fee act date of Feb. 23, 2017.

Mentioned in this article:

Clovis Oncology Inc. Nasdaq: CLVS

Dycom Industries Inc. NYSE: DY

Empire State Realty Trust Inc. Nasdaq: ESRT

PDC Energy Inc. Nasdaq: PDCE

Tesaro Inc. Nasdaq: TSRO

Extra Space Storage Inc. NYSE: EXR

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