Iconix Brand collapses on accounting restatements, lowered guidance; HomeAway drops back

By Rebecca Melvin

New York, Nov. 6 – Iconix Brand Group Inc.’s two convertible bond issues plunged on Friday after the New York-based brand management company announced restatements of certain financials between 2013 and 2015 and lowered its forward guidance. Iconix shares collapsed 57%.

HomeAway Inc.’s convertible bonds dropped back on an outright basis, and contracted on a hedged basis, after strong gains on Thursday. The reversal was linked to disappointment that Priceline Group Inc. said it won’t counter Expedia Inc.’s buyout offer for the company.

HomeAway was “getting clobbered,” a New York-based trader said. The bonds dropped a couple of points to about 101, and “came in” on swap by about 0.5 point after expanding 1.5 points on Thursday.

The trader predicted further contraction for the bond on Monday.

Priceline Group’s trio of convertible bonds were lower in active trade along with the underlying shares of the Norwalk, Conn.-based online travel services site, which were down 0.9% following headlines that it won’t bid for HomeAway.

Meanwhile, Horizon Pharma plc’s convertibles jumped outright and gained on swap after the Dublin, Ireland-based pharmaceutical company reported earnings that were better than expected. Horizon Pharma shares jumped 22%.

In the broader markets, equity markets were narrowly mixed and Treasuries were lower. The Labor Department said early Friday that non-farm payrolls rose a better-than-expected 271,000 in October and that the unemployment rate fell to a seven-year low of 5% from 5.1% previously.

The strong tally was seen as supportive of a Federal Reserve rate hike in December when the Federal Open Market Committee next meets.

The median forecast had called for an 185,000 advance in payrolls.

The yield on the benchmark 10-year Treasury climbed 10 basis points to 2.33%.

In the jobs report, the data showed that retail employment notched its biggest gain in a year, and construction was also strong, but manufacturers’ payrolls stood pat.

Iconix bonds plunge

The Iconix 2.5% convertibles due 2016 were seen in the range of 78 to 81, a New York-based trader said, with trades at 80 and representing a drop from about 97 on Thursday.

The Iconix 1.5% convertibles due 2018 were quoted at 60 bid, 65 offered, which was down from a level in the mid 80s previously.

Iconix shares were more than cut in half, falling $9.24, or 57%, to $6.90.

“Short dated paper shouldn’t trade like that,” the trader said of the 2.5% bonds, which mature in June.

Iconix, licenses and markets 35 consumer brands including Rampage, Mudd, Candie’s and Joe Boxer.

It will restate its financial results for the fourth quarter and full year of 2013 and every quarter in 2014, full year 2014 and the first and second quarters of 2015 to correct accounting errors.

Iconix now expects licensing revenue of $370 million to $380 million for full-year 2015, down from a range of $410 million to $425 million.

The company also lowered its 2015 earnings per share guidance to $1.35 to $1.40 a share, down from $2.00 to $2.15 a share.

Analysts had expected Iconix earnings of $2.08 per share on revenue of $421.73 million for the full year.

The Iconix convertibles have been on a roller coaster this year amid an ongoing investigation by the Securities and Exchange Commission and news of top executive resignations, including that of its founder and chief executive officer, Neil Cole, in August.

In early August, the Iconix 2.5% convertibles dropped to 87 but then traded back up to 94 bid, 95 offered by Aug. 13.

The SEC is reviewing company records regarding accounting methods and reporting. The complaint alleges that Iconix underreported the cost basis of its brands and engaged in irregular accounting practices related to its international joint ventures.

HomeAway contracts

HomeAway’s 0.125% convertibles due 2019 fell back to about 101 on Friday and were seen going lower to about par on Monday, given that Priceline isn’t expected to counter the Expedia bid to acquire the company unveiled Thursday, a New York-based trader said.

“The news was viewed as a big negative and means a par put for the bonds,” he said.

Expedia has agreed to buy the vacation rental site for $3.9 billion in cash and stock.

The bonds contracted by about 0.5 point on swap and were seen contracting about a point all told.

Shares of the Austin, Texas-based vacation rental site dropped $2.85, or 7%, to $37.30 on Friday.

On Thursday, the HomeAway bonds traded up to 103.5 bid, 104 offered versus an underlying share price of $39.90.

Priceline trades actively

There were hedged sellers in the Priceline 1% convertibles due 2018, and that paper moved lower by 2.6 points to 157.6.

However, outright buyers in the name were spurring much of the trading action, a New York-based trader said.

“There’s a lack of investment-grade paper and outrights are buying it,” a trader said.

The Priceline 0.35% convertibles due 2020 traded down 1.6 points to 129 and the Priceline 0.9% convertibles due 2021 traded down only 0.2 point to 107.5.

There was more than $40 million of the 1% bonds that changed hands, according to Trace data.

Priceline shares slipped $21.74, or 0.9%, to $1.449.90 on Friday.

Horizon Pharma improves

Horizon Pharma’s 2.5% convertibles due 2022 traded up about 13 points on an outright basis to about par on Friday. On a swap basis, the bonds expanded about 1.5 points, a New York-based trader said.

Horizon shares gained $3.74, or 22%, to $21.00.

“Horizon was going better on earning,” the trader said.

The company’s third-quarter profit was $3.3 million, or 2 cents per share, on revenue of $226.5 million. Excluding one-time items, earnings were 72 cents a share, which beat estimates by 30 cents. Revenue was also better than expected primarily on better sales of its controversial Duexis drug, which combines two generic drugs into one pill for treatment of arthritis.

Looking ahead, Horizon raised its 2015 sales guidance to $750 million to $760 million, which is up from previous guidance of $660 million to $680 million.

EBITDA for the year is expected to be $350 million to $360 million, which is up from $265 million to $280 million.

Mentioned in this article:

HomeAway Inc. Nasdaq: AWAY

Horizon Pharma plc Nasdaq: HZNP

Iconix Brand Group Inc. Nasdaq: ICON

Priceline Group Inc. Nasdaq: PCLN

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