By Rebecca Melvin
New York, Nov. 9 – A couple of beaten down names were trading better in the convertibles market on Monday despite weakness in the broader markets, which were weighed down by expectations of an impending rate hike.
Iconix Brand Group Inc.’s 2.75% convertible bond traded up, recouping some of the losses suffered on Friday after the New York-based brand management company announced restatements of certain financials and lowered forward guidance, a New York-based trader said.
Horizon Pharma plc’s convertibles were up on an outright basis, and expanded on swap, as corporate news continued to move the common shares of the Dublin, Ireland-based pharmaceutical company higher.
Horizon on Monday raised its sales expectations for 2015 and 2016 and said that by 2020 its long-range net sales would exceed $2 billion, of which 60% would be derived from its orphan drug segment.
On Friday, the company reported earnings that were better than expected and shares had jumped 22%.
Also on earnings news, Impax Laboratories Inc.’s convertibles were better on an outright basis but moved flat, or in line, on a swap basis after better-than-expected quarterly results from the Hayward, Calif.-based specialty pharmaceutical company.
Priceline Group Inc.’s 1% convertibles were down on an outright basis but expanded about 0.5 point on a swap basis after the online travel site reported earnings and revenue that beat estimates but disappointed investors with its current-quarter outlook. The Priceline 0.35% convertibles, which weren’t as actively traded as the 1% bonds, were lower outright but flat on a swap basis amid strong quarterly earnings but disappointing guidance.
Weyerhaeuser Co.’s 6.375% mandatory convertible preferreds were lower in quiet trade after news the Federal Way, Wash.-based timber company is merging with Plum Creek Timber Co. Inc. for $8.4 billion, but outperforming the common shares
The $50 par Weyerhaeuser preferreds were down 82 cents, or 1.6%, at $50.71 on the New York Stock Exchange, and the Weyerhaeuser common was off 90 cents, or 3%, at $29.50.
In the broader markets, equity markets were broadly lower, with the major U.S. stock indices each lower by about 1%.
The S&P 500 stock index fell 20.26 points, or 1%, to 2,078.58; the Dow Jones industrial average closed down 179.85 points, or 1%, to 17,730.48 and the Nasdaq stock market fell 51.82 points, or 1%, to 5,095.30.
Stocks were also mostly lower globally, with the Stoxx Europe 600 off 4 points, or 1%, and the Nikkei 225 down 377 points, or 2% on the day, while the Hang Seng was off a more modest 140.56 points, or 0.6%.
The drop in the S&P was the worst loss in six weeks, and the Dow Jones average slipped back into negative territory for the year with Monday’s loss.
In addition to weak China trade data that spurred concerns among overseas and U.S. investors, the expectation for a December rate hike by the Federal Reserve has gained traction.
China ended October with a record high trade surplus. China’s October exports fell for a fourth month, while imports also dropped, leaving it with a record high trade surplus of $61.64 billion.
On Friday the U.S. Labor Department reported non-farm payrolls rose a better-than-expected 271,000 in October and that the unemployment rate fell to a seven-year low of 5% from 5.1% previously. That data is supportive of a Federal Reserve rate hike in December when the Federal Open Market Committee next meets.
In the primary market, Aceto Corp. launched an offering for $125 million of five-year convertible senior notes that were talked to yield 1.75% to 2.25% with an initial conversion premium of 27.5% to 32.5%.
Port Washington, N.Y.-based Aceto is a marketer and distributor of pharmaceutical ingredients.
Iconix recoups some losses
The Iconix 2.5% convertibles due 2016 were seen in the range of 87 to 80, which was up about 7 points from Friday when the bonds were seen at 78 to 81. An early Trace print went up at 87.5, which compared to about 97 last Thursday.
Iconix shares pared early gains, closing up 15 cents, or 2%, to $7.05. Early Monday the shares were about 11% at $7.66, after plunging 57% on Friday.
The Iconix 1.5% convertibles due 2018 were not heard in trade.
Iconix, licenses and markets 35 consumer brands, including Rampage, Mudd, Candie’s and Joe Boxer.
The company said it will restate its financial results for the fourth quarter and full year of 2013 and every quarter in 2014, full year 2014 and the first and second quarters of 2015 to correct accounting errors.
Iconix also lowered guidance. It now expects licensing revenue of $370 million to $380 million for full-year 2015, down from a range of $410 million to $425 million.
The company also lowered its 2015 earnings per share guidance to $1.35 to $1.40 a share, down from $2.00 to $2.15 a share.
Analysts had expected Iconix earnings of $2.08 per share on revenue of $421.73 million for the full year.
Horizon Pharma improves
Horizon Pharma’s 2.5% convertibles due 2022 traded up to about 103, which was up from 100 on Friday and up from about 87 on Thursday.
They were better by about a point on swap, a New York-based trader said.
“They got crushed and now they are bouncing back a bit,” the trader said.
Horizon shares gained another $1.29, or 6%, to $22.29 on Monday, after jumping 22% on Friday.
The company on Monday announced that its sales and earnings are expected to benefit from accelerated clinical development of actimmune, an orphan drug for the treatment of Friedreich’s ataxia and cancer.
Horizon received fast-track designation from the Food and Drug Administration earlier this year.
The company said it expects sales of between $950 million and $975 million in 2016, compared to analysts’ forecasts of $99 million, and it boosted its forecast for 2015 to $750 million to $760 million, which was higher compared to $660 million to $680 million expected previously.
On Friday the company reported third-quarter profit of $3.3 million, or 2 cents per share, on revenue of $226.5 million. Excluding one-time items, earnings were 72 cents a share, which beat estimates by 30 cents.
Revenue was also better than expected primarily on better sales of its controversial Duexis drug, which combines two generic drugs into one pill for treatment of arthritis.
Priceline 1% expands
Priceline’s 1% convertibles due 2018 traded down nearly 11 points to 150. The other Priceline convertibles were not trading as actively, but the Priceline 0.35% convertible due 2020 changed hands at 122.5, which was down 7 points on the day. Priceline shares were down 9% at $1.318.00.
The Priceline 1% bonds were up about 0.5 point and the 0.35% convertibles were flat, or unchanged, on a swap basis, a New York-based trader said.
Priceline said it expects to earn $11.10 per share to $11.90 per share for the fourth quarter, which was below analysts’ estimates for earnings of $12.42. Bookings and revenue were also seen lower, with bookings expected to fall 5% to 10% from a year earlier.
Priceline shares fell $138.75, or 9.6%, or $1,311.15 on Monday.
Aceto to price
Aceto’s $125 million of five-year convertible senior notes are being talked with a 1.75% to 2.25% coupon and a 27.5% to 32.5% premium.
Wells Fargo Securities LLC and J.P. Morgan Securities LLC are joint bookrunners of the deal, the proceeds of which will be used to pay back debt and for general corporate purposes and also to pay the net cost of a call spread that is being transacted concurrently with the pricing of the notes.
The notes are non-callable with no puts. There is standard takeover protection and dividend protection for any dividends above $0.06 per share per quarter.
The notes will be convertible into cash, common shares or a combination of cash and shares.
Mentioned in this article:
Aceto Corp. Nasdaq: ACET
Horizon Pharma plc Nasdaq: HZNP
Iconix Brand Group Inc. Nasdaq: ICON
Impax Laboratories Inc. Nasdaq: IPXL
Priceline Group Inc. Nasdaq: PCLN
Weyerhaeuser Co. NYSE: WY
| Weyerhaeuser Co. convertible preferred: | NYSE: WY-PA
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