Convertibles quiet amid equity weakness; SanDisk 1.5% convertibles expand; Endo active

By Rebecca Melvin

New York, April 11 - Convertibles were quiet Friday as equities resumed a downdraft that has taken the Nasdaq stock market down 5% in the last week and a half to a close Friday at just below 4,000. The Dow Jones industrial average and the S&P 500 stock index fell 2.35% and 2.6%, respectively, for the week.

"There's literally nothing going on," one New York-based trader said Friday morning. He said market players were generally happy with their positions, and "people are flying the coop early for Easter."

Names mentioned in trade were doing better on a hedged basis.

SanDisk Corp.'s 1.5% convertible due 2017 was among the most actively traded bonds in the convertibles market, according to Trace data, and those notes were down on an outright basis but improved on a dollar-neutral, or hedged, basis, a New York-based trader said.

He said SanDisk's upcoming earnings report next week was prompting interest in the name.

Endo International plc's 1.75% convertibles due 2015 were trading at nearly 1 point of premium to parity as the underlying shares of the branded and generic specialty health care company whipsawed on Friday. For the week, the Endo shares have dropped 11%.

Trulia Inc.'s convertibles were better, opening up with the underlying shares of the San Francisco-based real estate site off, a New York-based trader said.

Equities fell sharply, led by losses in technology and biotechnology companies and especially momentum names that had strong gains in 2013 and into 2014.

In earnings news, JPMorgan Chase missed estimates, with its first-quarter profit down sharply amid weak fixed-income trading and mortgage revenue.

JPMorgan's profit was $5.27 billion, or $1.28 per share, compared to profit of $6.53 billion, or $1.59 a share, in the year-earlier quarter. Revenue was down nearly 8% to $23.86 billion. The results fell short of analysts' estimates, which predicted per-share profit of $1.40 on revenue of $24.53 billion.

JPMorgan's fixed income revenue was disappointing at $3.76 billion, which was down 21% from the year-earlier period, when fixed income revenue was $4.75 billion. Equity markets revenue including stock and stock option trading was steady at $1.3 billion from $1.34 billion a year earlier.

SanDisk expands on hedge

SanDisk's 1.5% convertibles due 2017 traded down on an outright basis to 153 to 154, which was down a couple of points outright, but the paper expanded on a dollar-neutral, or hedged, basis by about 0.375 point, with the underlying shares of the Milpitas, Calif.-based data storage company ending down 2%. The SanDisk convertibles changed hands at 153.5 to 154 following a 5-point drop on Thursday, according to Trace data.

"The SanDisk bonds remained higher again today, up 0.375 point, and they were up 0.5 point on Thursday," a New York-based trader said.

"There is a buyer somewhere, and the bonds have pushed out on a hedged basis, assuming a delta of 85%," the trader said.

SanDisk is scheduled to report earnings next week, and "the thinking is, they are going to whiff," the trader said.

The SanDisk bonds at about the 150-level is one of a varied group of bonds that investors hope will expand "on the way down" as shares fall.

"These are vol. names, and people are comfortable with the credit," a trader said.

Endo trades at parity plus

Endo's 1.75% convertibles due 2015 traded on Friday at more than double par, or 206, which was up 1.6 points on the day. The notes also traded at 202.7, which was down 1.8 points, according to Trace data.

The underlying shares whipsawed on Friday, trading slightly higher and also lower, ending down $2.09, or 3.5%, at $57.33.

Early Friday, Endo announced that its subsidiary Endo Health Solutions has further extended the consent date and expiration date for its previously announced exchange offers on 7% senior straight notes due 2019, 7% senior straight notes due 2020 and 7.25% senior straight notes due 2022. The new expiration date is April 28.

For the week, the Endo shares were down 11%.

"There are delta differentials so it's somewhat tricky to track" its dollar-neutral level, but they are trading at parity plus 0.875 point, a New York-based trader said.

They were at about the same level on Thursday, despite the whipsawing stock, the trader said.

Trulia 'opening up'

Trulia's 2.75% convertibles due 2020 were well bid for at 109.75 versus an underlying share price of $30.50.

Shares of the San Francisco-based real estate site recovered some from their lows, ending down $2.00, or nearly 6%, to $31.86.

Trulia is better, and opening up with the stock off even though borrow has gotten worse over the past month," a New York-based trader said.

He added that there are outright buyers in the bond.

CRT Capital initiated coverage on Trulia on Friday, setting a fair value rating on the stock with a $37.00 price target.

CRT said Trulia is a solid No. 2 in the online real estate space with Zillow ranked No. 1. CRT also said that Trulia's brand marketing plan for 2014 has initially been positive, but there could be substantial risks.

Earlier this week, Barclays initiated coverage on Trulia with an equal weight rating.

Trulia priced its $230 million convertible bond deal in December.

Mentioned in this article:

Endo International plc Nasdaq: ENDP

SanDisk Corp. Nasdaq: SNDK

Trulia Inc. Nasdaq: TRLA

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