Market quiet as focus shifts to earnings; Accuray sees outright interest; Salix in line

By Rebecca Melvin

New York, July 9 – U.S. convertibles traded languidly on Wednesday, and the planned Macquarie Infrastructure Co. LLC deal for $250 million of convertible senior notes wasn’t seen garnering too much attention ahead of final terms to be fixed after the market close, a New York-based trader said.

“Things have really slowed down here the last week and a half,” the trader said.

A second New York-based sellsider said, “In general, the market has felt weaker the past couple of days, but it is fairly quiet.”

No gray market was seen in the planned Macquarie deal, the sellsider said.

The market is still starved for new issuance, sources agree, even as new paper is anticipated to drop off following a heavy issue calendar in June and as many companies have entered quiet periods ahead of quarterly earnings releases.

As earnings season kicks off, there was an expectation that volatility will pick up and spur market activity, but there was no evidence of that occurring to date, a trader said.

“Hopefully it will, but it hasn’t yet. The S&P is at 2,000, so if it’s off 10 or 15 points, it’s really meaningless,” he said.

One bond that has generated some interest in the last few days is the Accuray Inc. 3.5% convertibles, which were down about 5 points since Monday to 95ish amid a stock move lower, a trader said.

The Accuray bonds were called unchanged on a hedged basis, but the outright move has attracted some outright buyers that have stepped in at the lower, absolute levels.

Salix Pharmaceuticals Ltd.’s convertibles traded down on an outright basis but were also seen unchanged, or in line with lower shares, on a dollar-neutral basis after the Raleigh, N.C.-based drug maker said late Tuesday that it has agreed to acquire the Irish division of Italian drug maker Cosmo Pharmaceuticals SpA and will reincorporate in Ireland.

Otherwise, convertibles were little changed, inspiring the refrain “steady as she goes,” according to one trader.

Equities extended gains on the heels of the release of minutes from the Federal Open Market Committee’s last meeting in June. The Fed said in the minutes that it has agreed to end its bond-buying program by October if the economy progresses on its current trajectory.

There was no clear signal on rates, and Treasury bonds rose after the minutes, pushing down yields.

A convertibles trader said that there didn’t appear to have been much market focus on the Fed minutes.

The bond-buying program was intended to hold down long-term interest rates and entice investors into risker holdings like stocks and corporate debt.

The Dow Jones industrial average ended up 78.99 points, or 0.5%, to 16,985.61; the S&P 500 stock index added 9.12 points, or 0.5%, to 1,972.83; and the Nasdaq stock market climbed 27.57 points, or 0.6%, to 4,419.03.

Outrights eye Accuray

Accuray’s 3.5% convertibles due 2018 traded at around 95 on Wednesday with shares of the Sunnyvale, Calif.-based medical device maker down at about $8.60.

“The stock has come off lately, and there is outright interest with the 5 points move [down]”, a New York-based trader said.

The move was in line on a hedged basis.

Accuray priced an upsized $100 million of the 3.5% convertibles in early 2013.

Salix in line

The Salix 1.5% convertible due 2019 changed hands on Wednesday at 206.625, which was down 8 points on an outright basis, according to Trace data.

Salix shares fell $3.98, or nearly 3%, to $133.29 on Wednesday.

Salix stock was trading off on the M&A announcement, a trader said. “I have the bonds largely nuking straight down.”

The Salix tie up with Cosmo is a tax-saving deal that Moody’s Investors Service deems credit positive for Salix.

“The deal provides financial benefits and enhances Salix’s business profile. There is currently no effect on Salix’s existing ratings including the B1 corporate family rating, the Ba1 senior secured rating and the B2 senior unsecured rating. The rating outlook is stable. Cosmo is unrated,” according to Moody’s published comment.

Mentioned in this article:

Accuray Inc. Nasdaq: ARAY

Macquarie Infrastructure Co. LLC NYSE: MIC

Salix Pharmaceuticals Ltd. Nasdaq: SLXP

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