Convertibles see better buyers; Jazz Pharmaceuticals outperforms; Royal Gold holds gains

By Rebecca Melvin

New York, Aug. 20 – U.S. convertibles saw better buying interest Wednesday, reversing course from recent sessions and following a strong new issue calendar last week that left the market “sloppy.”

“Everything got sloppy last week with the deals,” a New York-based trader said.

Buyers decided to step in amid positive market momentum and relatively firm equity markets, a second New York-based trader said.

A third trader qualified the commentary that there were better buyers in the market on Wednesday, saying instead, “Less to sell, maybe. People have been sellers for weeks.”

There were decent amounts trading in recent new issues like Priceline Group Inc. and Jazz Pharmaceuticals plc. The Jazz bonds outperformed their underlying stock.

Restoration Hardware Holdings Inc. was also active, with the 0% convertibles better by 0.25 point to 0.5 point on a dollar-neutral, or hedged, basis and seen wrapped around par at the close.

“They finally kind of bottomed out and moved up a little,” a trader said of Restoration Hardware.

Royal Gold Inc. was active both Tuesday and Wednesday, and those bonds held a 0.375 point to 0.5 point gain notched Tuesday, a trader said.

Meanwhile, Molycorp Inc.’s convertibles were mixed in active trade, as the divergence among the bonds continued and as shares of the Greenwood Village, Colo.-based miner of rare earths minerals lost 4.4% on the day.

Overall, convertibles pricing action seemed mostly back and forth on Wednesday, a New York-based trader said.

“It started bouncing back yesterday after feeling heavy last week,” the trader said. “For whatever reason, people decided to stop selling and started moving up their offers. There were a lot of outright buyers.”

Equities ended mostly higher after a brief drop following the release of minutes from the last Federal Open Market Committee meeting. The minutes left many market players changing their outlook to account for a possible rise in rates sooner than previously expected.

The Fed minutes said raising rates sooner may be warranted because the labor market has been better than anticipated and underutilization has improved.

After the minutes, the market “went down to flat and then to new highs,” a New York-based trader said. “They may raise rates sooner than expected, but who knows.”

A second trader said, “The market is very earnings focused and seems to be sloughing off everything else; and with the 10-year where it is, it’s stretching things a little.”

Jazz Pharma outperforms

Jazz Pharmaceuticals’ 1.875% convertibles due 2021, which priced earlier this month, were said to have traded well the last two days, outperforming shares. The bonds were called 110.5 bid, 111.5 offered at the end of the session Wednesday. There was also a Trace print late in the session at 112.125, which was up 2.625 points.

Jazz shares added $1.43, or 0.9%, to $158.30 on the day.

“They moved up pretty good” and “were pretty active, away,” a New York-based trader said, indicating that his firm was not actively trading the bonds.

The overall biopharmaceutical group felt a touch stronger Wednesday, another trader said, but the biopharmaceutical stock index was flat. Nevertheless, there have been “a little legs to the names,” the trader said, with outright buyers in the group as a whole.

For example, Illumina’s 0.5% convertibles were particularly active again, at pricing that was in line with where they have been.

Royal Gold edges up

Royal Gold’s 2.875% convertibles were quoted at 109.75 bid, 110.75 offered near the end of the session with the underlying shares at $79.60, a trader said.

Shares of the precious metals royalty company edged up 19 cents, or just 0.2%.

“They were at 10 and north of 10,” the trader said of the convertibles.

On Tuesday, the Royal Gold paper had added 0.375 point to 0.5 point on a dollar-neutral basis, if a 45% delta was assumed.

“There was a spate of selling last week and then new buyers stepping in,” a trader said.

“It’s one of the cheap names without a ton of downside,” he said.

Driving the market action were some market players bullish on gold, he said.

Molycorp divergence remains

Molycorp’s 3.25% convertibles due 2016 were pushing higher on Wednesday to the 77.75 to 78.75 level, while the newer Molycorp 6% convertibles moved lower to the 57.50 bid, 58.50 offered range, a Connecticut-based trader said.

“The 6’s and 5.5’s were for sale, and the other ones were to buy,” the trader said.

Molycorp also has a 5.5% convertible, which is its newest bond, and that trades at about the same price as the 6% bonds.

Molycorp’s 3.25% convertibles priced in June of 2011; the 6% convertibles priced in August of 2012; and the 5.5% convertibles priced in January 2013.

Molycorp shares were down 9 cents, or 4.4% to $1.94 on Wednesday.

“There is a 19-point spread between the bonds, and no one is sure why that’s happened. Two weeks ago, the spread was 11 points to 12 points,” a New York-based trader said.

Ownership in the oldest bond is very concentrated, and that may or may not have something to do with it, he said.

Mentioned in this article:

Jazz Pharmaceuticals plc Nasdaq: JAZZ

Illumina Inc. Nasdaq: ILMN

Molycorp Inc. NYSE: MCP

Priceline Group Inc. Nasdaq: PCLN

Restoration Hardware Inc. NYSE: RH

Royal Gold Inc. Nasdaq: RGLD

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.