Goldcorp, Newmont active but weak; Accuray, Endo down on weaker outlooks; Cobalt gains more

By Rebecca Melvin

New York, Jan. 4 - A pair of gold-mining names, Goldcorp. Inc. and Newmont Mining Corp., traded actively in the convertible bond market on Friday, and were weaker outright, although the Goldcorp. 2% convertibles were slightly better on a hedged basis, according to sources.

All three of the companies' issues, which also include Newmont's 1.625% convertible due 2017 and 1.25% convertible due 2014, were among the top volume names traded according to Trace data. The Newmont bonds were down more than 2.5 points apiece outright, and the Goldcorp bonds were down less than a point. Meanwhile, the underlying shares of both companies were volatile, but ended in positive territory after dropping Thursday.

Gold prices fell on Thursday after minutes from the Federal Reserve's December policy meeting revealed committee members are divided on whether current U.S. debt purchases should persist into 2014.

Gold futures for February were down $16.00, or 1%, to $1,658.90 an ounce on the Comex in New York on Friday.

Elsewhere, Accuray Inc. fell hard on both an outright and hedged basis after the Sunnyvale, Calif.-based radiation oncology company preannounced earnings that missed estimates, lowered its 2013 forecasts, and said it would be cutting 13% of its workforce. Accuray shares plunged 20%.

Market players said the Accuray bond's 2 point drop on a dollar-neutral basis was probably overdone, and one buysider was not selling any bonds despite bids for the paper at the lower price.

Endo Health Solutions Inc.'s convertibles were also lower outright on underlying shares that were off 4.5%, after the Chadds Ford, Pa.-based pharmaceutical company unveiled a revised 2013 forecast that was below analysts' estimates.

Meanwhile, Cobalt International Energy Inc.'s $1.2 billion of 2.625% convertibles, which priced in mid-December, pushed higher again, changing hands at about 106, which was 5 points-plus higher on the week.

Overall, convertibles trading volumes picked up Thursday and Friday amid volatility caused by speculation about U.S. monetary policy.

"Things were definitely trading. Stocks were moving around; Treasuries, high yield and credit spreads were moving around; you name it. I spent one whole afternoon redoing all the names we cover, mostly to the upside," one convertibles trader said, citing a high-yield credit rally.

Advanced Micro Devices Inc. was better, for example, he said, with its 6% convertibles changing hands at 94.5, which was up a point.

The widely-watched monthly jobs report Friday failed to provide more clarity on which way Fed policy might be heading. The U.S. economy added 155,000 positions to its non-farm payroll in December, which was in line with expectations, and about average in terms of monthly gains. The unemployment rate remained unchanged at 7.8%.

The Dow Jones industrial average added 43.85 points on the day, or 0.33%, to end at 13,435.21; the S&P 500 stock index gained 7.10 points, or 0.5%, to 1,466.47, and the Nasdaq Composite Index was essentially flat, edging up 1.09 point, or 0.04%, to 3,101.66.

Goldcorp, Newmont most active

Goldcorp's 2% convertibles were seen at 108.75 bid, 109 offered versus an underlying share price of $35.25 toward the end of the day. That was down about 0.75 point outright, but up on a hedged basis by about 0.25 point, according to an East Coast-based trader, who thought the issue was rich and held it short on swap.

The Goldcorp convertibles were the most actively traded issue in the convertibles market Friday, according to Trace data.

Shares of the Vancouver, B.C.-based mining company added 14 cents, or 0.4%, on Friday to $35.75.

Newmont's 1.625% convertibles due 2017 traded down 2.7 points to 128.83 during the session, but pared losses to end at 129.25, which was down 2.25 points outright on the day, according to Trace data.

Newmont 1.25% convertibles due 2014 ended down 2.6 points to 116. 858, in slightly less active trade.

Newmont shares ended the session up 32 cents, or 0.7%, to $45.94.

Accuray drops hard

Accuray 3.75% convertibles due 2016 were seen at 92.5 bid, 93 offered, versus an underlying share price of $5.50. That was down a couple of points dollar neutral, sources said.

Accuray shares fell $1.47, or 20%, to $5.41 in extremely heavy volume.

"It's down more than it should be," a buysider said of the convertibles held on a hedged basis.

The delta on the name is mixed, with some holders at 50% delta and others at 65%.

"I had a pretty heavy delta, and they still came in heavy," a West Coast-based trader said.

Causing the drop in the securities was the company's preannouncement in which it said things would be worse than expected but didn't provide much detail.

"In a vacuum, without a lot of information, things trade down sometimes," a trader said.

Nevertheless, the trader was bullish on the company's business, and said he was looking to buy the bonds, which he thought were likely to recover some after an initially aggressive downward move.

Endo weaker

Endo's 1.75% convertibles due 2015 traded down to 109.375, which was off 2 points from more than 111, according to Trace data.

Endo shares dropped $1.19, or 4.5%, to $25.06.

Pulling the securities lower was Endo's announcement that it now sees 2013 adjusted earnings in a range of $4.40 to $4.70 per share on revenue of $2.8 billion to $2.95 billion.

The company said in December that it didn't expect to reach its initial 2013 guidance of $5.20 to $5.40 per share in adjusted net income and $3 billion to $3.2 billion in revenue. Analysts had forecast earnings of $5.05 per share on revenue of $3.05 million.

Endo expects sales of pain drug Opana ER will fall by 20% from 2012's projected $300 million.

But the company still expects adjusted earnings at or below the low end of its outlook for $5.00 to $5.10 per share for 2012.

Stifel Nicolaus kept a "buy" rating on the shares following the updated guidance, but reduced its share price target to $38.00 from $40.00. Cantor Fitzgerald kept a "hold" rating on the Endo shares, with a static $26.00 per share price target.

Endo also cut its 2012 forecast in November, citing lower sales of its pain drug Opana, which faces market competition.

Endo's pain-relieving patch Lidoderm is also set to face competition from Sept. 15, 2013 when Watson Pharmaceuticals Inc. launches a generic version.

The company was formerly known as Endo Pharmaceuticals Holdings Inc. and changed its name to Endo Health Solutions Inc. in May 2012.

Mentioned in this article:

Accuray Inc. Nasdaq: ARAY

Advanced Micro Devices Inc. NYSE: AMD

Endo Health Solutions Inc. Nasdaq: ENDP

Goldcorp Inc. NYSE: GG

Newmont Mining Corp. NYSE: NEM

Cobalt International Energy Inc. NYSE: CIE

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