United Therapeutics jumps outright, 'comes in' on hedge; Navistar 3% tracks with shares

By Rebecca Melvin

New York, Dec. 23 - United Therapeutics Corp.'s bonds jumped with the company's common stock early Monday after the company said that the Food and Drug Administration cleared its pulmonary arterial hypertension drug Orenitram. But the bonds failed to keep pace with a surge in the underlying shares and were lower on a dollar-neutral, or hedged, basis, at least in the early part of the day.

United Therapeutics' 1% convertible notes due 2016 surged about 40 points on an outright basis but contracted by 0.5 point to a point on swap, a New York-based trader said.

Elsewhere, Navistar International Corp.'s 3% convertibles due 2014 were seen at 102 bid, 102.375 offered versus an underlying share price of $37.16, according to a New York-based trader.

Navistar shares dropped Friday and were down on Monday after the Lisle, Ill.-based truck, bus, military vehicle and engine maker reported a wider quarterly loss.

The Navistar 3% convertibles "tracked fairly" with the shares, the trader said.

Also continuing to get a look were the NorthStar Realty Finance Corp. convertibles on news that the New York-based real estate investment trust closed a $340 million investment in RXR Realty. The investment includes a combination of corporate debt, preferred equity and common stock in RXE, which provides NorthStar with an approximately 30% ownership interest in RXR.

NorthStar shares, which have been on a tear this month, started Monday's session higher but ended down 6 cents, or 0.5%.

"NRF has been tying up with New York-based asset manager RXR, which is formerly Reckson. This lift has made it the winner of the month," a New York-based sellsider said of the 5.375% convertibles. He quoted the paper at 122.25 versus an underlying share price of $13.01.

"Anyone who held the bond outright or on a light delta was a winner," the sellsider said. Although the bond was said to trade on a 95% delta and REIT volatility has been very high.

Overall, convertibles were quiet on Monday as market players were mostly tidying their books ahead of the upcoming Christmas holiday and year-end.

"Only half the team is here," a Connecticut-based convertibles analyst said, noting it was a "totally dead day."

The S&P 500 stock index added 9.67 points to 1,827.99 on top of an 8.72-point addition on Friday. The Dow Jones industrial average jumped 73.47 points, or 0.5%, to 16,294.61, on top of a 42-point climb Friday; and the Nasdaq stock market gained 44.16 points, or 1.1%, to 4,148.90.

United Therapeutics active

United Therapeutics' 1% convertibles due 2016 traded at 227.375 versus an underlying share price of $107.74. That was up 40 points on an outright basis but appears to be a contraction of 0.5 point to a point on swap, a New York-based trader said.

Shares of the Silver Spring, Md.-based biotechnology company extended gains from an early $20.00 pop to end the session up $26.67, or 30.4%, to $114.51.

According to Trace data, the bonds traded last at 235.90 and represented a good chunk of Monday's total trading volume.

The pop came after the company announced late Friday that the FDA approved its Orenitram extended-release tablets for the treatment of pulmonary arterial hypertension. The government approval was historic given that the FDA had rejected two other versions of the drug, United Therapeutics president Roger Jeffs said in a company news release.

The news was followed by several analysts' upgrades of the United Therapeutics shares.

Navistar tracks with shares

Navistar's 3% convertibles due 2014 were seen at 102 bid, 102.375 offered versus an underlying share price of $37.16, according to a trader, who said early in the session that the bonds "tracked fairly" with the underlying shares.

Shares of the truck company were slightly weak in the early going but extended losses for an 87 cent drop, or 2.2%, on the day to $36.34.

The Lisle, Ill.-based truck, bus and engine manufacturer reported a loss of $154 million, or $1.91 per share, for its fiscal fourth-quarter ended Oct. 31. That compared to a loss of $2.77 billion, or $40.13 per share, last year.

Last year's result was weighed down by a $2 billion tax expense. This year the result was boosted by a $220 million tax benefit.

Revenue fell 13% to $2.75 billion.

Analysts expected, on average, a loss of $1.53 per share on $2.88 billion in revenue.

Navistar also said it saw lower sales across all of its business segments.

Analyst Vicki Bryan of the Gimme Credit, an independent research service, noted the company's long list of problems, including continued heavy cash spending to meet warranty obligations arising from a type of truck engine Navistar tried to introduce that has underperformed in sales.

Bryan, who rates the bonds a "sell," said in a research note: "Navistar is under the gun to get its wheels out of the ditch after finally abandoning its colossally failed proprietary emissions system produced in all its legacy engines and trucks. As it struggles to reinvent its entire product line in a matter of months, its biggest challenge will be to maintain sufficient cash to fund the transition that will secure its future."

Mentioned in this article:

Navistar International Corp. NYSE: NAV

NorthStar Realty Finance Corp. NYSE: NRF

United Therapeutics Corp. Nasdaq: UTHR

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