New Source launches; Isis adds on swap; Ares Capital steady to mixed after earnings miss

By Rebecca Melvin

New York, May 4 – U.S. convertibles traded quietly on Monday with a number of earnings reports on tap for the day as equities traded firmly higher.

The primary market was quiet, although there was a small preferred deal launched by New Source Energy Partners LP for $40 million, which was expected to price late Tuesday.

A number of earnings reports are due out this coming week, and until the earnings season cycles through, very little new issuance is expected.

Meanwhile, there was little to no follow-through in the secondary market from last week, sources said. The biotechnology sector remained well bid, however, a New York-based trader said.

LinkedIn Corp. and Twitter Inc., which were big movers last week on earnings, were quiet on Monday. Twitter was seen very little changed, with the social media company’s 1% convertibles in trade below 90.5 versus an underlying share price of $37.85 late in the session. That was up possibly 0.125 point on the day, a trader said. The bond dropped sharply on an outright basis and were essentially unchanged on swap last week after earnings.

In biotech, Isis Pharmaceuticals Inc.’s 1% convertible bonds traded up 4 or 5 points on an outright basis on Monday and added 0.25 point on a dollar-neutral, or swap, basis, after news that the Carlsbad, Calif.-based developer of gene-based therapeutic drugs sold a chunk of one of its drugs to Bayer AG in exchange for royalties.

Spectranetics Corp.’s convertibles traded up on an outright basis together with a 7% climb in the underlying shares of the Colorado Springs, Colo.-based medical device maker. Spectranetics continues to bounce around following a recent drop on worse-than-expected results.

In tech land, SanDisk Corp.’s 0.5% convertibles traded in line with shares of the Milpitas, Calif.-based data storage company, which ended 1.4% lower.

The SanDisk 0.5% convertibles were quoted at 103.25 with the stock at $67.50.

Some of Ares Capital Corp.’s convertibles were trading after the New York-based business development company reported earnings per share that missed estimates by a couple of cents. There were outright investors selling one Ares convertible and buying another, a trader said.

New Source Energy to price

New Source Energy plans to price convertible preferred units that were talked to yield 11% with an initial conversion premium of 15%, according to a syndicate source.

The registered deal, expected to price late Tuesday, has a greenshoe for an additional 15% of the series A cumulative convertible preferred units and is being sold via Stifel, Nicolaus & Co. Inc. as lead bookrunning manager with Robert W. Baird & Co. Inc. serving as joint bookrunning manager. Co-leads are Janney Montgomery Scott LLC, Oppenheimer & Co. and Wunderlick Securities.

Proceeds will be used to repay a portion of debt outstanding under its revolving credit facility.

Oklahoma City-based New Source Energy is an independent oil and natural gas properties company.

Isis adds 0.25 point

Isis Pharmaceuticals’ 1% convertibles due 2021 were quoted around 114.75 bid, 115.5 offered with the underlying shares at $62.00, a New York-based trader said. That gain represented a hedged expansion of about 0.25 point, a trader said.

Isis shares pared early gains to end up $1.42, or 2.4%, at $59.66.

The company said that it has sold the rights to its experimental thrombosis prevention drug to German-based Bayer.

Under the license, Isis expects an upfront payment of $100 million on the drug, called ISIS-FRXI, and an additional $55 million following a phase 2 study in patients with compromised kidney function. Isis is also eligible to receive milestone payments as the drug advances toward the market as well as tiered royalties in the low to high 20% range on gross margins of the drug.

Isis priced the $425 million of the notes at the cheap end of talked terms in December.

Spectranetics up with shares

Spectranetics’ 2.625% convertibles due 2034 were last seen up at about 109.5 from 104.50 to 105 previously, according to a market source. Spectranetics’ shares were up 7% to $26.01.

The convertibles of the maker of single-use medical devices had been 129 before its latest quarterly report, which was for a loss with earnings excluding items missing expectations on lower-than-expected revenue of $57.4 million, compared to estimates for $60.6 million in revenue.

The Spectranetics bonds expanded 2 points or more at that point and was one of the best convertible arbitrage moves of the week before last.

Spectranetics priced $230 million of the bonds due 2034 via Piper Jaffray last June.

Ares steady to mixed

Ares Capital’s 5.125% convertibles due 2020 change hands at 103.75, which was little changed on the day, and its 4.75% convertibles due 2018 trade down about 0.5 point at 105.25, according to Trace data.

Shares of the New York-based BDC were off 22 cents, or 1.3%, at $16.72.

“They are buying the longer-dated paper, making it richer, so some hedge fund may step in and begin shorting those,” a trader said.

Ares reported lower first-quarter earnings of $100.6 million, or 32 cents per share, compared to $117 million of earnings, or 39 cents per share, in the year-earlier period. Excluding items, earnings for the latest quarter were 37 cents per share, which missed most analysts’ forecasts by a few cents.

Ares chief executive officer Kipp deVeer said in the release, “We are pleased with another strong quarter of earnings for ARCC and credit quality remains strong. Our portfolio rotation strategy has proven to be successful, enabling us to increase our overall portfolio yield again this quarter. We also realized gains on some of the equity co-investments in our portfolio, contributing to an attractive total return on our investments.”

Mentioned in this article:

Ares Capital Corp. Nasdaq: ARCC

Isis Pharmaceuticals Inc. Nasdaq: ISIS

New Source Energy Partners LP Nasdaq: NSLP

LinkedIn Corp. Nasdaq: LNKD

SanDisk Corp. Nasdaq: SNDK

Spectranetics Corp. Nasdaq: SPNC

Twitter Inc. Nasdaq: TWTR

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