Health care convertibles mixed; energy ‘trickles back’; China-related names active on data

By Rebecca Melvin

New York, April 13 – The health care and energy sectors remained the main focus of the convertibles market on Wednesday. Health care traded mixed, based on company-specific news, while energy remained firm amid a slip in oil prices, a New York-based sellsider said.

Jazz Pharmaceuticals plc traded up on an outright basis and expanded on a dollar-neutral, or swap, basis as shares of the Dublin-based biopharmaceutical company gained 5% on the back of a positive ruling by U.S. Patent and Trademark Office on the company’s Xyrem drug.

The Jazz convertibles were up 2.5 points dollar neutral, the sellsider said.

Depomed Inc.’s convertibles were up about 2 points, and shares of the Newark, Calif.-based specialty pharmaceutical company were also up, as that name responds to headlines about activist investor Starboard Value LP, which holds a 9.8% ownership stake in the company and is pushing for better execution and capital allocation, removal of the board, and potentially a sale of the company.

Depomeds were up on Wednesday after “getting hammered for the past three weeks,” the sellsider said.

Health care convertibles were mixed overall after some profit-taking on Tuesday.

Clovis Oncology Inc.’s convertibles were lower, trading at 60 from 61 on Tuesday, but the bond has generally held in relative to the underlying shares of the Boulder, Colo.-based biotechnology company. On Tuesday trading was halted for most of the session pending a regulatory panel decision, which turned out to be negative regarding its New Drug Application for rociletinib.

Clovis shares continued to move lower on Wednesday to $13.49, which was off 5.3%.

“No one wanted to make the first move,” a trader said of trading in the Clovis convertibles. “But the convertibles held up as guys are still waiting to see if the FDA approves the drug. It still may happen. This is not the only shot on goal, and the company has more cash than debt,” the trader said.

U.S. energy convertibles quieted down somewhat after a dip in crude oil prices following an almost 20% jump in the last week.

“It’s trickling back today,” a New York-based trader said of the energy sector convertibles.

“There was a small pullback in oil prices, but things are still well up from where they were a couple of weeks ago,” he said.

But while energy and the volatility of that sector mean it’s an important one for convertibles players, there isn’t much paper left in the space to trade, a sellsider said.

One name that has seen a lot of action is Chesapeake Energy Corp. Those convertibles were active again on Wednesday and they ended up moving higher along with higher shares. The Chesapeake 2.5% convertibles due 2037 traded up to 80 after they were initially bid 78 when shares were up 14 cents, or 2.3%, to $6.19. The shares ended at $6.06.

Hornbeck Offshore Services Inc.’s convertibles were a little higher with higher shares. That paper was seen up 0.5 point at 59.5 bid, 60.5 offered. Shares of the Covington, La.-based oilfield services company were up 51 cents, or 5%, at $10.50.

Meanwhile, Energy XXI Ltd. was expected to file for bankruptcy protection as soon as Thursday following the expiration of a grace period for missed interest payments, according to a Bloomberg report. The Energy XXI 3% convertible notes due 2018 traded last at 1 on April 8, according to Trace data.

The Houston-based oil and gas company previously missed two interest payments on $1.6 billion of debt on March 15. The company has said that it might seek Chapter 11 bankruptcy protection if oil prices remained low and it was unable to refinance its debt.

The energy names were up a lot on Tuesday, and they were “trickling back today,” a New York-based trader said.

Market players do not think that the sector is in the clear. “It was probably short covering moving it higher,” the trader said. “Most people think there is plenty more to come.”

A few China-related names were pulled into trade in U.S. convertibles early Wednesday on the back of Chinese trade data that was better than expected.

China’s General Administration of Customs showed the country’s dollar-denominated exports jumped 11.5% for March from a year earlier.

Vipshop Holdings Ltd.’s convertibles traded up a little more than a point to 104.875, while shares of the Guangzhou, China-based online discount retailer rose more than 2% to about $14.60, according to Trace data.

China’s Sina Corp.’s 1% convertibles due 2018 traded unchanged at 98.375 with shares of the Shanghai-based online media company up $1.84, or 3.7%, to $51.18; and SouFun Holdings Ltd.’s 2% convertibles due 2018 added 0.375 point to 98 as shares of the Beijing-based real estate internet company edged up 4 cents to $6.00.

Jazz Pharma outperforms

Jazz Pharmaceuticals’ 1.875% convertibles due 2021 traded at 111.26, which was up 4.26 points on the day, according to Trace data. Shares traded up 5% to $147.34.

The bonds outperformed their underlying stock on the back of the positive patent ruling related to its Xyrem drug.

“A bunch of brokers came out in favor and Cowen released a note saying to add aggressively to Jazz positions,” a trader noted.

Meanwhile Clovis’ 2.5% convertibles due 2021 traded last at 60, which was down from 61 on Tuesday and 62.63 on Monday.

After a meeting on rociletinib on Tuesday, the U.S. Food and Drug Administration’s Oncologic Drugs Advisory Committee recommended that the FDA wait and see results from Clovis’ ongoing phase 3 trial before making a decision on approval of the treatment, according to the Clovis news release.

“We are disappointed with today’s outcome, as we believe in the strength of the data we presented for rociletinib,” Clovis president and chief executive Patrick Mahaffy said in the release.

The company pledged to work with the FDA to evaluate the best path forward as it continues to review its application.

The FDA set a target action date of June 28. The phase 3 trial is expected to be complete in late 2018.

Chesapeake adds again

Chesapeake’s 2.5% convertibles due 2037 traded up as high as 80.5 on Wednesday but came off a bit at the end of the session to close around 79. That was up from 78 on Tuesday.

“It was better for sale at the end of the day,” a trader said.

The Chesapeake 2.25% convertibles were also active. They were seen at 55 bid, 59 offered.

“It is up a good amount,” a trader said of the Chesapeake 2.25% convertibles. These bonds have gained about 10 points in two days, he said.

Chesapeake announced on Monday that it has maintained its $4 billion borrowing limit with amendments to its secured revolving credit facility agreement. Under the agreement, which matures in 2019, Chesapeake had to pledge additional assets as collateral.

Mentioned in this article:

Chesapeake Energy Corp. NYSE: CHK

Clovis Oncology Inc. Nasdaq: CLVS

Depomed Inc. Nasdaq: DEPO

Energy XXI Ltd. Nasdaq: EXXI

Hornbeck Offshore Services Inc. NYSE: HOS

Jazz Pharmaceuticals plc Nasdaq: JAZZ

Sina Corp. Nasdaq: SINA

Soufun Holdings Ltd. Nasdaq: SFUN

Vipshop Holdings Ltd. Nasdaq: VIPS

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