SunEdison, Aegerion contract sharply on hedge; new Aceto looks cheap, up in gray market

By Rebecca Melvin

New York, Nov. 10 – Earnings news was a catalyst for selling in several convertibles names on Tuesday. The paper of SunEdison Inc. and Aegerion Pharmaceuticals Inc. fell sharply on both an outright and hedged basis, and other names were also victims of swift and decisive selling, including Avid technology Inc., although those bonds were not trading actively, a New York-based trader said.

“There are a lot of landmines out there, and all the smaller issue, unobservable credits are getting trashed,” the trader said.

SunEdison’s complex of convertible bonds were down 3 points on swap across the board after the solar technology company reported a wider-than-expected loss for its third quarter and the common shares collapsed 22%.

The Aegerion 2% convertibles fell 2.5 points to 3 points on swap after the Cambridge, Mass.-based biopharmaceutical company reported mild quarterly numbers, but ongoing unknowns were worrying investors, including the future sales potential of its Juxtapid drug and the potential impact of investigations by the Securities and Exchange Commission and Department of Justice, a trader said.

Avid’s convertibles and those of other companies like SolarCity Corp. have been hit as their underlying shares have come off. The Avid shares were quoted at 64 bid, 65 offered with the stock at $6.24.

“The bonds aren’t really trading,” a trader said of Avid. “They are unhedged-able and risky.”

In general, “there are no catalysts for these [issues] to come back, and stuff is getting sold,” the trader said.

Meanwhile “the safe, IG boring stuff is holding,” he said, referring to investment-grade issues.

In the primary market, a planned deal was getting the once over before pricing after the market close, and although the deal looked nearly 4 points cheap, according to one market player, the bonds were bid higher in the gray market ahead of pricing only by about 0.125 point to 1.125 points.

Aceto Corp.’s $125 million of five-year convertible bonds were valued at about 103.7, using a credit spread of 475 basis points over Libor and 35% vol. at the midpoint of price talk.

Shares of the Port Washington, N.Y.-based marketer and distributor of pharmaceutical ingredients fell $2.06, or 7.5%, to $25.55 on the heels of the deal launch.

SunEdison tanks

SunEdison’s 6.75% perpetual convertible preferred stock with a $1,000 par, which priced last summer, dropped to about 500 on Tuesday.

The SunEdison 2% convertibles due 2018, or the A tranche, traded at 66, which was down from about 77 on Monday.

The SunEdison 2.75% convertibles due 2021, or the B tranche, changed hands at 60 and then at 58, which was down from about 73 on Monday.

The SunEdison E and F tranches, which priced in May, were at about 43.

The SunEdison C and D tranches were at 46, a trader said.

Shares of the St. Peters, Mo.-based solar technology company closed down $1.63, or 22%, to $5.77.

The company said that it was going to pursue the previously announced acquisition of Vivint Solar Inc. for about $2.2 billion, but it doesn’t have access to capital markets right now, including the convertibles market, which is closed, the trader said.

“There is nothing to securitize it with and the equity is getting trashed,” he said.

“They can’t raise money and that is what they need, although they have cash and can run for about 19 months,” he said.

Investors are getting worried about bankruptcy, which wouldn’t happen for some time, but with pricing at these levels it becomes a concern, the trader said.

There aren’t great ways to hedge a lot of these names, the trader said, and now that things are getting a little more uncertain, they are taking it on the chin.

Investors are “avoiding them now that we are getting to year-end,” the trader said.

Aegerion drops sharply

Aegerion Pharmaceuticals’ third-quarter results indicated that new competitors were affecting prescription volume trends, and there was concern about the future potential of its important Juxtapid drug.

Aegerion 2% convertibles fell about 5.5 points to 68.8.

Aegerion shares fell $2.48, or 19%, to $10.64, after dropping 20% on Monday ahead of the earnings report.

Sales of its high cholesterol drug Juxtapid surged 36% to $58.8 million compared to the year-earlier quarter. Total revenue was up 54% to $67.3 million and its non-GAAP earnings per share climbed $0.20 from $0.21 last year.

But “there are a lot of unknowns surrounding this company,” a trader said. And a lot of negative headlines swirling around Valeant Pharmaceuticals, specialty pharma and the potential impact of the Presidential election has exacerbated the concerns. “It’s a risky run with health care,” he said.

“I think there are a lot of interesting names and values, but sometimes you can’t fight the tape,” he said.

Mentioned in this article:

Aceto Corp. Nasdaq: ACET

Aegerion Pharmaceuticals Inc. Nasdaq: AEGR

Avid Technology Inc. Nasdaq: AVID

SolarCity Corp. Nasdaq: SCTY

SunEdison Inc. Nasdaq: SUNE

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