Weatherford, AMD gain; Endologix drops sharply; Medicines up; PDL BioPharma deal on tap

By Rebecca Melvin

New York, Nov. 16 – Trading in convertibles on Wednesday was influenced by the large, euro-denominated Bayer AG deal, which priced at the cheap end of talk following a launch on Tuesday. Some U.S. convertible issues bounced back after dragging on Tuesday when market players were raising money to be involved in the Bayer deal, a New York-based trader said.

Bayer priced €4 billion of its new 5.625% mandatory convertible notes with an initial conversion premium of 20%.

“More of the [Bayer] deal was allocated to Europe, but a lot of U.S. guys still played it,” a trader said.

In general, the issues trading on the back of the Bayer deal were energy names and mandatory paper, and some of those issues improved on Wednesday as funds went back into them.

Weatherford International Ltd. was stronger in very active trade even as crude oil prices wavered and market players continued to weigh what will happen to an accord among the world’s major oil producers to trim supply.

The Weatherford 5.875% exchangeable spiked back to as high as 109.25 after trading around 105ish on Tuesday. But the exchangeable ended the session off its highs at about 108.75, with the underlying Weatherford common stock up 14.5 cents, or 2.8%, at $5.29 on the day.

The benchmark West Texas Intermediate crude oil contract slipped 0.5% to $45.57 per barrel.

Among technology names, Advanced Micro Devices Inc.’s 2.125% convertibles due 2026 pulled higher, trading up to 115 as shares gained 10% to $7.68. Tech investors are cheered about the prospects for new chip technology, the trader said.

Also on Wednesday there was focus in health care, with a planned deal from that sector in the convertibles market expected to price after the market close.

“Guys are getting their arms around” PDL BioPharma Inc.’s planned offering $150 million of convertible senior notes due Dec. 1, 2021, a convertibles trader said.

The PDL deal, which launched late Tuesday, was on tap for after the market close on Wednesday, but there was quiet surrounding the deal and no price talk could be obtained by Prospect News’ deadline. PDL BioPharma’s common shares tanked on the heels of the convertibles deal launch, closing down 67.5 cents, or 18%, to $3.045.

Part of the proceeds of the new deal is earmarked for buying back PDL BioPharma’s existing 4% convertible due 2018. Those bonds traded Wednesday at 98.375, which represented a 5.4% yield, and that was deemed cheap for such short-dated paper.

“It’s almost one-year paper; it matures Feb. 1, 2018,” a trader said.

Meanwhile, Endologix Inc. was another story to watch in the sector on Wednesday. The Endologix 3.25% convertibles due 2020, which was a $150 million issue that priced a year ago, dropped 15.5 points on an outright basis to 97.539. The Endologix common stock fell $2.02, or 20.5%, to $7.82.

“They are not very long dated, and with its chunky coupon it is likely of interest as a yield play,” a trader said of the bond.

Endologix also has a 2.25% convertible that matures in 2018. Those bonds traded down about 5 points to 88.

“That’s a big move for shorter-dated paper,” a trader said.

The securities fell after the developer of aortic disorder treatments announced that U.S. regulators have asked the company to provide two-year patient follow-up data from a study of Nellix EndoVascular Aneurysm Sealing System.

The company said that it expects the data to be available and submitted to the U.S. Food and Drug Administration in the second quarter of 2017 followed by a possible FDA advisory panel meeting by the end of 2017, and potential FDA, PMA approval of Nellix in the second quarter of 2018.

Endologix chief executive John McDermott said in a press release that the requirements and the resulting delay were disappointing but that the two-year clinical outcomes seen so far with Nellix under its newly revised instructions for use have been encouraging. McDermott said the company remains committed to the therapy, according to a press release.

Medicines Co.’s 2.75% convertibles due 2023 traded better at 103.84, which was up several points after the Medicines securities whipped around on Tuesday on the heels on new drug trial data.

The new data on Medicines’ leading, development phase drug appeared to be positive. “They have definitely gone better after earlier volatility,” a trader said, adding that initially the convertibles had traded up, then fell back and now are up again.

“They whipped around a lot. It popped on the data, then moved way down and closed back up,” a trader said.

Shares of the Parsippany, N.J.-based health care company closed up $1.41, or 3.9%, at $38.23.

The Medicines’ 2.75% convertibles due 2023 traded up several points to 103.85.

The Medicines 2.5% convertibles due 2022 didn’t appear to have traded.

Although health care got a bounce given that president-elect Trump has a more pro-business stance compared to Democratic candidate Hillary Clinton, their anticipated change of leadership has not gone all one way.

“There has been a lot of rotation. Health care got a bounce with the Trump win. There has been a big rally in some things, but other issues that move along with the yield curve were hit,” trader said.

It really depended on the hedge, but there are convertible arbitrage players that were long the longer-dated paper and didn’t have interest rate protection that have been hurt, the trader said.

“It was a mixed bag for arbs; it wasn’t all sunshine,” the trader said.

The longer-dated, lower coupon segment was hurt.

Overall, the effects of the U.S. presidential election were still being felt in convertibles, with credit-oriented paper pulling back in tandem with the overall bond markets in the wake of the surprise victory of Republican candidate Donald Trump, who is not expected to support ultra-low interest rate policy under his administration.

“There was a pullback in emerging market, growth and tech stocks, but for the most part, things have done well relative to the bond market move. Tech has held in with the bond market, tracking in line, a trader said regarding the market for tech sector names for the last week.

The Dow Jones industrial average snapped a string of gains, dropping 55 points, or 0.3%, to 18,868 after closing at an all-time high on Tuesday, which represented its seventh straight session of gains. The S&P 500 stock index fell 0.2%, and the Nasdaq composite stock index rose 0.4%.

Mentioned in this article:

Advanced Micro Devices Inc. NYSE: AMD

Bayer AG Xetra: BAYN

Endologix Inc. Nasdaq: ELGX

Medicines Co. Nasdaq: MDCO

PDL BioPharma Inc. Nasdaq: PDLI

Weatherford International Ltd. NYSE: WFT

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