Convertibles weaker as stocks sell off; BPZ Resources files bankruptcy; Akorn tumbles

By Rebecca Melvin

New York, March 10 – Convertibles were weaker, with many names for sale, but not much trading on Tuesday as equities and oil prices sagged, market sources said.

“With the Dow down 1.5%, everything is generally for sale from the long-only, outright guys, and things are lower on swap,” a New York-based trader said.

Everything energy-related was quoted lower, he said. But there was not a lot of volume.

BPZ Resources Inc.’s distressed convertibles slumped even lower after the Houston-based oil and natural gas exploration and production company filed for bankruptcy protection late Monday.

Energy XXI (Bermuda) Ltd.’s 3% convertibles were little changed, however, at 37.5 to 38.5 despite a slide in the underlying shares of the Houston-based energy exploration and production company, and the Energy XXI 5.625% perpetual convertible preferreds were lower at about 46, which was down from 49.

A trader said trading in Energy XXI has been related to the company’s second-lien straight notes offering that priced last week.

Elsewhere, Akorn Inc.’s way-in-the-money 3.5% convertibles came down as shares of the Buffalo Grove, Ill.-based pharmaceutical company dropped sharply following news that Actavis plc is launching a skin cream that will compete with Akorn’s clobetasol cream, a major contributor to Akorn revenue.

Following the Actavis skin-cream news, Akorn reaffirmed full-year guidance, but Jefferies cut its share price target on Akorn to $56.00 from $59.00, and Sterne Agee cut its forecast to $51.00, citing concerns about the potential impact of the rival product.

There were other sundry trades market sources referenced. MGM Resorts International’s convertibles, which mature next month, have been in trade the last couple of sessions and have been lower, in tandem with lower shares.

Also traders were looking at the Barnes & Noble Inc.’s convertible preferred in light of a 10% slide in the underlying shares of the New York-based book company. The preferred was down in line on a dollar-neutral basis, one trader said.

Equities were sharply lower, with the Dow Jones industrial average and S&P 500 stock index erasing their gains for 2015 and ending near their lows for the session. The Dow dropped 332.78 points, or 1.9%, on the day; and the S&P sank to 2,044.16, which was down 35.27 points, or 1.7%, on the day. The S&P closed 2014 at 2,058.90 on Dec. 31.

The Nasdaq composite index fell 82.64 points, or 1.7%, to 4,859.80.

Distressed BPZ slips lower

BPZ Resources’ bonds slipped lower Tuesday and were quoted at the end of the session at 13.25 bid, 13.75 offered. They went into the day at 15 bid, 20 offered, a Connecticut-based trader said.

The company filed for Chapter 11 bankruptcy protection late Monday after missing its payout of its 6.5% convertible due March 1.

One trader said that the filing was not a surprise given the missed payout.

BPZ has $60 million of the 6.5% convertibles outstanding.

The company also has an 8.5% convertible due 2017.

BPZ shares were down 2 cents, or 30%, to $0.042.

BPZ said that it will continue to operate its business while in bankruptcy, and that the filing was prompted by depressed oil prices and a general industry downturn that made it difficult for the company to refinance its debt.

Akorn lower

Akorn’s 3.5% convertibles were seen to have dropped to 517 from 590.6, according to a market source.

Akorn shares fell $6.40, or 12%, to $45.44 in ultra-heavy volume.

Akorn reaffirmed its full-year earnings per share issued late last month, which predicts revenue of between $960 million and $980 million and adjusted diluted earnings per share of between $1.88 and $1.98.

Those ranges are at the low end of analysts’ forecasts.

While competition in the skin cream arena was expected, the Actavis product comes earlier and from a bigger player than expected, Sterne Agee analyst Shibani Malhotra wrote in a research note.

Barnes & Noble in focus

Barnes & Noble’s convertible preferred stock was seen at 140 versus an underlying share price of $22.84 near the end of the session.

Barnes & Noble shares fell $2.50, or 10%, to $22.36 on Tuesday.

The drop in the preferred was in line on a dollar-neutral basis, if holders were on a 75% delta, one trader said.

A second trader said that the drop in the common stock caused him to look at the preferred to see if it was time to step in as a buyer of the paper.

The company reported a large quarterly earnings miss, with earnings of 93 cents per share, missing analysts’ estimates of earnings of $1.23 per share. Revenue was $1.96, which was down 2% from the year-earlier quarter.

“Across the board, BKS didn’t do well,” a trader said, citing issues including when back to school fell on the calendar this past year and a potential spinoff of the college books segment of the business.

Mentioned in this article:

Actavis plc NYSE: ACT

Akorn Inc. Nasdaq: AKRX

Barnes & Noble Inc. NYSE: BKS

BPZ Resources Inc. OTC: BPZR

Energy XXI (Bermuda) Ltd. Nasdaq: EXXI

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