Convertibles space sees quiet end to week; Greenlight ‘buttoned up’; Insmed volatile

By Abigail W. Adams

Portland, Me., Aug. 3 – The convertibles market rounded the week out quietly with light trading volume in the secondary space.

New paper from Greenlight Capital Re, Ltd. did little to spur trading activity.

The new 4% convertible notes due 2023 were “pretty well buttoned up,” a market source said, with not one bond seen trading during Friday’s session.

In the broader secondary market, there was about $55 million on the tape early in the session and about $166 million by mid-afternoon, sources said.

However, trading activity was not concentrated on a particular name.

There were large movements in the equities of convertible bond issuers and there may have been some delta hedging taking place, but few bonds were trading.

Insmed Inc.’s 1.75% convertible notes due 2025 saw a volatile session on Friday with the notes cresting 104 early in the session only to nuke down alongside stock later in the afternoon.

The FDA is reviewing the biopharmaceutical company’s medication for lung disease next week, and there is speculation the process will not be as easy as initially thought.

Apollo Commercial Real Estate Finance, Inc. announced a privately negotiated exchange with holders of its 5.5% convertible notes due 2019, retiring the majority of the convertible notes from the market.

While Herbalife Nutrition Ltd.’s more recently priced 2.625% convertible notes due 2024 were not active on Friday, the company’s older 2% convertible notes due 2019 were.

With the notes on a high delta, they were most likely moving in-lock step with stock, a market source said.

Greenlight buttoned up

Greenlight Capital Re priced $100 million of five-year convertible notes after the market close on Thursday with a coupon of 4% and an initial conversion premium of 25%.

The deal came at the cheap end of price talk for a coupon of 3.5% to 4% and an initial conversion premium of 25% to 30%.

The notes were not seen trading on Friday. “Not a single bond,” a market source said. The small deal was well allocated with no markets to make in the secondary space.

Insmed volatile

Insmed’s stock and 1.75% convertible notes due 2025 saw a volatile session on Friday. The notes at one point traded as high as 104 with stock soaring early in the session.

However, the notes nuked down alongside stock into the afternoon.

They were seen on a dollar neutral basis at 96.5 bid, 97.5 offered versus a stock price of $26.75. Insmed stock traded as high as $31.50 on Friday before dropping off into the afternoon and trading to a low of $25.73.

Insmed stock closed Friday at $26.17, a decrease of 6.8%. Insmed stock was up more than 16% on Thursday.

The volatility comes as Insmed awaits FDA review of its new drug ALIS to treat a rare lung disease. The FDA posted briefing documents on Friday for its panel meeting on ALIS to be held Aug. 7.

The turnaround in Insmed stock Friday afternoon came after realization the questions the company would be asked were tougher than previously expected, a market source said.

The questions cast doubt over imminent approval of the medication, which many had been optimistic about.

Apollo’s exchange

Apollo announced a privately negotiated exchange with holders of its 5.5% convertible notes due 2019 on Friday.

The company will exchange $206.2 million of the outstanding notes for cash and shares, leaving $48.6 million outstanding.

“That takes care of the hedge,” a market source said.

The 5.5% notes were last seen trading at 108 on Monday, according to Trace data. The notes will be exchanged for 10 million shares of common stock and $39.3 million in cash.

Herbalife active

While Herbalife’s most recently priced convertible notes were not trading on Friday, the company’s 2% convertible notes due 2019 were active as stock continued to rise after the company’s second-quarter earnings report.

The 2% notes were seen up about 3.5 points outright to trade at 140 after climbing more than 10 points on Thursday.

The 2% notes move on a 90% delta and were most likely trading in lock step with stock, a market source said.

Herbalife stock closed Friday at $59.00, a 2.18% increase. The stock was up 13% after the company’s second-quarter earnings report on Thursday.

Herbalife reported non-GAAP earnings per share of 80 cents for the second quarter, surpassing analyst expectations of 68 cents.

Mentioned in this article:

Apollo Commercial Real Estate Finance, Inc. NYSE: ARI

Greenlight Capital Re, Ltd. Nasdaq: GLRE

Herbalife Nutrition Ltd. NYSE: HLF

Insmed Inc. Nasdaq: INSM

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