Health care names better bid; Brocade extends dollar-neutral gain; Aegean Marine rises

By Rebecca Melvin

New York, Jan. 13 – U.S. convertibles were riding higher early Tuesday amid a rally in equity markets, and they went quiet around midsession as equities whipsawed to the downside and closed lower, a New York-based trader said.

“There was a pretty big buy wave this morning, but it shut off at about 12:30 p.m. ET,” the trader said.

Of paper in demand in the early going were many health care names, including BioMarin Pharmaceutical Inc.’s 0.75% A series and 1.5% B series convertibles in follow through action from Monday when shares of the Novato, Calif.-based biopharmaceutical company jumped following a presentation at the J.P. Morgan Healthcare Conference underway this week in San Francisco.

“Equities have been to buy, and when there is vol. to the upside, people seem to be active,” the trader said of convertibles.

Also in the health care sector, Cubist Pharmaceuticals Inc.’s A and B convertible series were also trading on Tuesday in risk arb trade ahead of the anticipated close around Jan. 21 of Merck’s cash offer to buy the company.

In addition Hologic Inc.’s convertibles have been active in the last couple of days amid interest from mainly outright market players as shares have risen.

But vol. to the downside seems to have contributed to inactivity, he said. Energy names were pretty quiet, he said.

Elsewhere, Brocade Communications Systems Inc.’s 1.375% convertibles, which debuted in the secondary market on Friday, extended gains again, riding up another 0.5 point in early action for a cumulative dollar-neutral gain of 4 points since the issue priced.

The new bond was seen at 104.25 versus where shares of the San Jose, Calif.-based storage area networking company closed at $11.95, a syndicate source said.

Tesla Motors Inc.’s 1.25% convertibles moved up a point or so to about 88 in early action when shares of the Palo Alto, Calif.-based electric car maker were up 1% at $204.88. But a late trade was back at 86, according to Trace data, and Tesla shares fell in after-hours action after a report that chief executive Elon Musk said fourth-quarter sales in China have declined.

Alcoa Inc.’s 5.375% mandatory convertible preferred stock traded down 93 cents, or 1.8%, to $50.41, and the New York-based aluminum company’s common stock came off 2.3% after it released a strong quarterly report late Monday, kicking off a new earnings season.

KB Home’s 1.375% convertibles due 2019 were seen to have changed hands down about 4 points at 95, according to Trace data, as shares of the Los Angeles-based homebuilder tumbled by as much as 19% intraday.

KB Home shares ended down $2.70, or 16%, at $13.87 after management said during a conference call that the company was not going to meet profit margin expectations for 2015.

Convertibles traders queried on KB Home had not been active in the name, but Trace data reported a few trades down from its previous level of around 99.

Aegean Marine Petroleum Network Inc.’s convertibles were up from the offer price of its $42 million add-on Tuesday, trading at 113.75 bid, 114.75 offered versus an underlying share price of $13.25, after the Athens-based marine fuel logistics company priced the additional 4% senior notes due 2018 at 111, according to a syndicate source.

Aegean Marine shares were off 9% at $13.25.

Not much color materialized on the planned Southwestern Energy Co. deal for $1.3 billion of mandatory convertible preferred shares. The company is a natural gas and oil exploration and development company that recently purchased prime shale assets from Chesapeake Energy Corp. The deal was expected to price late Wednesday.

Volatility in the stock market was the hallmark of Tuesday’s session as a number of cross currents turned many early gainers to session losers.

For convertibles, the plunge in crude oil prices has created a lot of uncertainty, one trader said. “We’ve reached the indecision point in crude. There is no stability: first it’s down $2 bucks, then it rallies, so people are just sitting on their hands.”

The S&P 500 stock index ended down 5.23 points, or 0.3%, to 2,023.03; the Dow Jones industrial average shed 27.16 points, or 0.2%, to 17,613 and the Nasdaq stock index ended down 3.21 points at 4,661.50.

BioMarin active

BioMarin’s 0.75% convertibles due 2018 traded last at 123 after an active session and up from about 120 to 121 previously.

BioMarin’s 1.5% convertible due 2020 traded last at 127.85, which was up from 122 to 124 previously.

BioMarin shares had been up a lot on Tuesday but came off with the broader market move. The stock closed Tuesday at $97.13, which is up 3.5% from Friday’s close.

“Health care was generally [well] bid during the JPMorgan conference,” a trader said.

“Realized vol. is up in some of these names, and if guys were short they are trying to cover, and there was also fundamental interest coming in,” the trader said.

Tuesday’s action in BioMarin was described as follow-through from the company’s conference presentation on Monday.

The BioMarin As were being bought by both outright and swap players. The B tranche was less active and didn’t seem to have rallied as much, the trader said.

Mentioned in this article:

Aegean Marine Petroleum Network Inc. NYSE: ANW

Alcoa Inc. NYSE: AA

BioMarin Pharmaceuticals Inc. Nasdaq: BMRN

Brocade Communications Systems Inc. Nasdaq: BRCD

Cubist Pharmaceuticals Inc. Nasdaq: CBST

Hologic Inc. Nasdaq: HOLX

KB Home NYSE: KBH

Southwestern Energy Co. NYSE: SWN

© 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.