Illumina convertibles down on swap in active trade after sales warning; primary quiet

By Rebecca Melvin

New York, Oct. 6 – Illumina Inc. was a major focus in the U.S. convertibles market on Tuesday, with those bonds falling sharply on an outright basis, and mostly lower on a dollar-neutral, or hedged, basis, after the San Diego-based developer of genetic research tools issued a sales warning.

Illumina cut its sales guidance for the rest of the year, citing weakness in its European and Asia-Pacific markets. For fiscal 2015, the company now projects approximately 18% total revenue growth and fourth-quarter revenue of approximately $570 million. The company will release third-quarter results on Oct. 20.

Overall, the biotechnology and health care sectors were weighing on the equities market but not having much of an impact on the convertibles market, however, a New York-based trader said.

The biotech sector continues to be weak on drug pricing pressure. But in the convertibles secondary, paper was more or less quiet, he said.

But Illumina – a heavily shorted stock – is a major name in the convert space, and as of midday, the Illumina bonds accounted for about 40% of total convertible volume, according to Trace data, he said.

BioMarin Pharmaceutical Inc.’s common stock was also down, but the BioMarin bonds were not that actively traded and looked to have moved mostly in line.

The BioMarin A tranche, or the 0.75% convertibles due 2018, traded last around 129.875, which was down about 3 points on the day, as shares of the Novato, Calif.-based biopharmaceutical company closed at $103.24, which was down $6.69, or 6%.

The BioMarin B tranche, or the 1.5% convertibles due 2020, traded last at 134.125, which was down from about 140 previously.

Elsewhere, the convertibles market was trading quietly with no action in the primary market. The lack of new paper has put a damper on the convert space, and now that the next earnings season is imminent, some suspect that new issuance will remain mute for another month.

“People are waiting for more primary, but the equity market is not giving it to us. Guys are waiting. It could be that there will be some deals with equities higher, but it may not pick up until after earnings season,” a trader said.

Back in the secondary market, technology was also quiet. Twitter Inc.’s convertibles were moving in line with the equity. And there was a little focus on China internet names, including Ctrip.com International Ltd., Qihoo 360 Technology Co. Ltd. and Vipshop Holdings Ltd. Those names were seen slightly better this week, a trader said.

Meanwhile, Energy XXI Ltd. traded higher, in line with the underlying shares. The Energy XXI 3% convertibles traded at 13 with the stock higher at $1.78, which was up 33 cents, or 23%, on the day.

Illumina down in active trade

The Illumina 0% convertible due 2019, or the A tranche, fell about 6 points in active trade. That took the bond to 101.5 to 102 from about 107.6 to 108. On a dollar-neutral, or hedged, basis, the bonds were marked down about 1.5 points, sources said.

Illumina’s 0.5% convertible note due 2021, or the B tranche, was down about 5 points to 107. That looked to be about 0.5 point to 0.75 point lower on the day.

Illumina’s older 0.25% convertibles due 2016 traded down to about 170 from just under double par previously.

The common shares of Illumina, the San Diego-based developer of genetic research tools, were down about $24.00, or 15%, to $139.40.

“It’s so awful. It’s the most shorted bond,” a trader said.

Ctrip, Qihoo, Vipshop better

The Chinese internet space remained a little better on Tuesday after showing some resolve on Monday.

The Ctrip.com’s 1.25% convertibles due 2018 traded at 111.5 late Tuesday, which was off a little bit compared to Monday when the shares rose, but better than Friday’s level.

Vipshop’s 1.5% convertibles due 2019 traded last at 115.8, which was up from about 114 on Monday.

Shares of the online retailer were at $18.56, which was up about 0.6% on the day.

That represents a little further strength after China stocks hit a two-week high on Monday.

“There has been a little focus on the Chinese names, and they are a little better for no discernible reason,” a trader said.

There is no particular reason; it’s more quiet than anything, but things look to be up small today on pretty light volume,” a trader said.

Mentioned in this article:

BioMarin Pharmaceutical Inc. Nasdaq: BMRN

Ctrip.com International Ltd. Nasdaq: CTRP

Energy XXI Ltd. Nasdaq: EXXI

Illumina Inc. Nasdaq: ILMN

Qihoo 360 Technology Co. Ltd. Nasdaq: QIHU

Twitter Inc. Nasdaq: TWTR

Vipshop Holding Ltd. Nasdaq: VIPS

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