Convertibles steady after Paris terror attacks; Clovis collapses on drug-review setback

By Rebecca Melvin

New York, Nov. 16 – U.S. convertibles were mixed to little changed on Monday and unmoved by the coordinated terror attacks in Paris that left scores dead in the French capital Friday night, market sources said.

There was “not really any reaction,” a New York-based trader said regarding the terrorism. Likewise, the broader markets were relatively unaffected, and in fact made strong gains Monday afternoon, with the S&P 500 stock index ending up 30.15 points, or 1.5%, to 2,053.19.

“They are bouncing back,” a second New York-based trader said of the equity markets.

“For better or for worse, it doesn’t carry over,” the trader said. “How is it going to affect corporate bonds?”

Instead, convertibles were better bid on Monday after notably heavy high-yield and credit markets and spread widening last week, he said.

“It’s unchanged, and, if anything, it’s coming back; we’re seeing better bids,” the trader said.

Given the tone last week, there is a somewhat narrowed focus on shorter-dated cash flow, low premium names, he said.

In company specific moves, Clovis Oncology Inc.’s convertibles plunged by about 100 points on Monday after the Boulder, Colo.-based biotechnology company announced that regulators have asked for more clinical data for its rociletinib lung cancer treatment.

Clovis said it will provide additional information to the Food and Drug Administration by the close of business on Monday, but it still expects potential approval will be delayed from the March 30, 2016 date that had been expected.

The Clovis 2.5% convertibles due 2021 fell to about 80 from 180 in active trade, according to Trace data.

But on a dollar-neutral, or hedged, basis the bonds “opened up” a point or two, as Clovis shares fell $67.19, or 69.6%, to $30.24.

Elsewhere, PRA Group Inc.’s convertibles were seen to be stabilizing after a big move downward in tandem with the underlying shares of the Norfolk, Va.-based financial and business service company.

“It seems the PRAA bonds have found a bottom,” a trader said.

The bonds were seen trading in the 88.25 bid, 89 offered context with the underlying shares at $36.00.

That was down from about 106 bid, 107 offered with the shares at $53.62 a month ago.

Last week, the stock was down, but the bonds were not that much different from Friday.

One name that was a bit better in the early going was Illumina Inc. Its trio of convertible bonds were seen higher on a swap basis by about 0.25 point, the trader said.

The common stock of the San Diego-based genetic research equipment maker was flat to higher at about $166.00.

Primary sees activity

There was a bit of activity in the U.S. and international primary market late in the day. In the United States, Black Hills Corp. launched an offering of $260 million of equity units that were seen pricing together with a common stock offering late Tuesday.

The $50 units were talked to yield 7.25% to 7.75% with an initial conversion premium of 17.5% to 22.5%.

Proceeds from both offerings will be used for partial funding of the previously announced acquisition of SourceGas Holdings LLC, which is expected to close in the first half of 2016.

Rapid City, S.D.-based Black Hills is a vertically integrated energy company.

In Canada, BTB Real Estate Investment Trust priced a small, C$25 million issue of five-year convertible debentures on a bought-deal basis. Proceeds will be used to take out its existing convertibles due in January, with remaining proceeds for general corporate purposes.

Europe saw another small deal: commercial real estate company publity AG priced €20 million of five-year convertible bonds to yield 3.5% with an initial conversion premium of 23.17% above the company’s reference price on Nov. 9.

The bonds are expected to be listed on the open market of the Frankfurt stock exchange on Tuesday.

Mentioned in this article:

Black Hills Corp. NYSE: BKH

BTB Real Estate Investment Trust Toronto: BTB.UN

Clovis Oncology Inc. Nasdaq: CLVS

Publity AG Xetra: PBY

PRA Group Inc. Nasdaq: PRAA

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