Anacor bonds contract on swap on takeout news; Teligent adds; Wright Medical extends gains

By Rebecca Melvin

New York, May 16 – Anacor Pharmaceuticals Inc.’s convertibles surged by 38 points on an outright basis on Monday but fell on a dollar-neutral, or hedged, basis after news that Pfizer Inc. said it would buy the Palo Alto, Calif.-based biopharmaceutical company for about $4.5 billion in cash.

The takeout price is for $99.25 a share, and those shares shot up in reaction by 57% to more than $100.00 on the Nasdaq stock exchange.

On a swap basis, the Anacor 2% convertibles contracted 3.5 points to 5 points, but most arb players were down by the 5-point loss amount, a Connecticut-based trader said.

Teligent Inc.’s 3.75% convertibles traded up by about 3 points to 82 along with a 3% rise in the underlying shares the Buena, N.J.-based specialty generic pharmaceutical company to $5.32 after it announced it received regulatory approval for its Triamcinolone Acetonide Ointment USP 0.1% – its fourth prescription topical ANDA approved by the FDA so far this year, the company said in a release.

Wright Medical Group NV’s convertibles extended gains after the Amsterdam-based orthopedic medical device company priced a new issue of 2.25% convertibles due 2022 in a private placement and exchange agreement last week. The new issue of $395 million of 5.5-year convertible senior notes traded at almost 107, which was up from trades at 102.5 to 103 on Friday.

The older Wright Medical 2% convertibles due 2020 traded better at 94, which was up from about 92.4 to 92.75 on Friday.

Nvidia Corp.’s 1% convertibles due 2018 also extended gains to about 210 to 211 after jumping about 20 points to more than double par last week. The Santa Clara, Calif.-based company is trading at all-time highs after reporting its gaming revenue jumped 17% year over year.

Elsewhere, Oklahoma City-based SandRidge Energy Inc., an oil and natural gas company, said it filed for Chapter 11 in the U.S. Bankruptcy Court for the Southern District of Texas to carry out a prearranged reorganization with creditors holding more than two-thirds of its $4.1 billion of funded debt. The news didn’t faze convertibles traders, sources said.

The SandRidge “convertibles have been below 10 for a while now,” a trader said.

SandRidge shares fell 4 cents, or 66% to $0.02.

In the broader markets, equities rallied strongly after a weekly loss notched last week. The S&P 500 stock index gained 20 points, or 1%, to 2,066.66; the Nasdaq Stock Market surged 58 points, or 1.2%, to 4,775.56 and the Dow Jones industrial average gained 1% to 17,710.71.

Crude oil prices gained as well. The front month of West Texas Intermediate crude oil rose $1.65, or 3.6%, to $45.86 per barrel on the New York Mercantile Exchange. That price is about $10.00 lower than a year earlier.

Anacor contracts on swap

Anacor’s 2% convertibles due 2023 were quoted at 151.25 versus an underlying share price of $99.85 toward the end of the session on Monday by a New York-based trader. The bond also crossed the Trace tape at 152.9, which was up 37 points on the day.

Anacor shares rose $36.64, or 57%, to $100.67.

But despite the huge outright gain, the paper was down on a swap basis, market sources said.

“ANAC didn’t make one coupon payment and is being taken out,” a trader said.

Anacor priced the $287.5 million convertible deal about six weeks ago. The bonds had surged to around 120 from the get go amid speculation that it was an acquisition target after Pfizer and Allergan plc nixed their planned tie up following a U.S. tax rule change that reduced the advantages of corporate tax inversions.

A second New York-based trader concurred, saying the company was “rumored to be a takeout target, but the takeout matrix was not particularly friendly.”

If the trade was being run on a theoretical delta of 78% to 80% ahead of Monday’s announcement, the loss would have been 4 to 5 points, the trader said. “You had to be on a lighter than 70 [delta] to break even.”

Anacor’s key product is crisaborole, a treatment for eczema that is under U.S. regulatory review.

Mentioned in this article:

Anacor Pharmaceuticals Inc. Nasdaq: ANAC

Nvidia Corp. Nasdaq: NVDA

SandRidge Energy Inc. Nasdaq: SDOC

Teligent Inc. Nasdaq: TLGT

Wright Medical Group NV Nasdaq: WMGI

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