Morning Commentary: Acorda Therapeutics convertibles under pressure; Depomed edges up on payment

By Stephanie N. Rotondo

Seattle, April 4 – Liquidity in the convertible bond market remained constrained in early Tuesday trading, according to one sellside source.

“I think, for the most part, that the [convertibles] universe is overpriced and stale,” he said. “They need a whole bunch of new issues.”

Furthermore, he noted that it was “difficult to make money” in certain on-the-run names, such as Intel – names that trade at a premium and have little volatility in their equity.

“Guys need reasons to move paper,” he remarked. “A lot of names, there’s no reason to move them.”

“Occasionally, you get a story like Acorda Therapeutics Inc.,” he conceded. It was reported on Monday that a Delaware court invalidated four of the company’s five patents on its Ampyra multiple sclerosis drug, which could give makers of generic versions of the treatment an opportunity to take market share.

But the news did result in activity in the off-the-run name, with the 1.75% convertible notes due 2021 declining 1.25 points on swap in Monday trading, the trader said.

Come Tuesday, the convertibles were seen at 80.625, which was “probably down another half point.”

The stock (Nasdaq: ACOR) was down over 1% at mid-morning.

“I expect as the stock goes lower, the converts will continue to weaken,” the trader said.

Meanwhile, Depomed Inc. – another non-generic name – was being eyed, as the company said it had made a $100 million prepayment on its secured debt facility.

The company’s 2.5% convertible notes due 2021 were “bouncing with the stock,” a trader said, seeing the paper around 94.5.

That compared to levels around 93 on Monday.

“There’s a lot of leverage in this one,” the trader said.

As for the underlying equity (Nasdaq: DEPO), it was up nearly 2% at mid-morning.

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