VeriSign expands on hedge, but most convertibles in line; Medivation erases early gains

By Rebecca Melvin

New York, Nov. 1 - A raft of upbeat economic data boosted equities on the first day of November, but convertibles were trading mostly in line on Thursday with market focus on company-specific news, including earnings.

The first day on the month was marked by a decrease in trading activity in convertibles compared to month end Wednesday, market players said.

"There were spotty traders, with no real noticeable trends," a Connecticut-based trader said. Many people were still out due to storm-related issues.

There was no pressing need to trade, a New York-based trader said. "Equity portfolio managers were putting money to work for the new month, but convertibles were quiet. The prior month is done, plus there's the employment number tomorrow."

Both the traders remained without power at home due to Monday's storm.

Among names in focus, VeriSign Inc. was higher outright and better by about 0.25 point on a dollar-neutral, or hedged, basis after the registry of Web domain names issued a positive statement regarding its agreement with the Commerce Department to keep running the .com Web domain-registry. VeriSign stocks and bonds popped after falling last week when uncertainty about renewal of the agreement was raised.

RTI International Metals Inc. traded up in line with its underlying shares after the Pittsburgh-based titanium producer reported a big jump in net income and was upgraded to "neutral" from "sell" by Goldman Sachs & Co.

Medivation Inc.'s convertibles fell on an outright basis, but were flat, or in line, on a dollar-neutral, or hedged, basis, after the San Francisco-based biopharmaceutical company unveiled early indications of promising sales for its newly approved prostate cancer drug. Medivation stock dropped from initial gains on Thursday to end essentially flat.

Greenbrier Cos. Inc.'s convertibles were indicated sharply lower along with a drop in the underlying shares after the Lake Oswego, Ore.-based railcar maker reported earnings that were less than half of what analysts expected.

Equities surged with positive economic data. The Dow Jones industrial average closed up 136.16 points, or 1%, at 13,232.62, the Nasdaq composite stock index jumped 42.83 points, or 1.4%, to 3,020.06, and the S&P 500 stock index closed up 15.43 points, or 1.1%, at 1,427.59.

In economic news, the United States added 158,000 private-sector jobs in October, according to payrolls processor ADP.

The Conference Board said its consumer-confidence index increased to 72.2 in October from a downwardly revised 68.4 in September. The level was the highest in four years, according to reports.

And the Institute for Supply Management's index of purchasing edged up to 51.7% up from 51.5% and was better than expectations, which forecast that the index would edge down to 50.5.

A reading above 50% signals expansion.

As for convertibles, "stocks were moving around, but converts held up. Even on the blow ups, converts were holding up on a delta-neutral basis," a Connecticut-based trader said.

VeriSign eyes approval

VeriSign's 3.25% convertibles due 2037 traded higher to 136 versus an underlying share price of $42.40 during the session and closed at about 132.75 versus an underlying share price of $41.15.

The convertibles expanded about 0.25 point on a hedged basis on about a 90% delta, a New York-based trader said.

VeriSign shares spiked by as much as 16% after the company released an update on the status of its government approval as a .com registry. Shares closed up $4.08, or 11%, at $41.15.

The Reston, Va.-based company said, "While the review process with the Commerce Department may extend beyond Nov. 30, 2012, it could also be concluded by Nov. 30, 2012. In either case, VeriSign expects to continue to run the .com registry.

RTI International up in line

RTI International's 3% convertibles due 2015 traded at 105.375 bid, 106.125 offered versus an underlying share price of $24.44. That was up from about 103.25 bid, 103.5 offered previously, a Connecticut-based trader said.

Shares of the Pittsburgh-based titanium producer closed up $2.31, or 10%, at $25.10.

The bonds are held by many outright investors but also trade on a hedged basis. One trader said he held his RTI convertibles on a 55% delta.

"They were mostly in line," he said of the pricing of the RTI convertibles.

RTI was upgraded to "neutral" from "sell" at Goldman Sachs on Thursday after reporting net income for its third quarter to $5.6 million, or 19 cents per share, which was more than double the year-earlier period when net income was $2.1 million, or 7 cents a share.

Revenue rose 32% to $189.1 million compared to $143.7 million in the same period of 2011.

Titanium mill product shipments during the quarter were flat to lower at 4.2 million pounds compared to 4.3 million pounds in 2011.

The results were "right in line with our expectations," chief executive Dawne Hickton said in a release.

The company was therefore continuing its 2012 guidance, including sales in excess of $700 million, volume of 16 million pounds or more of titanium mill product shipped and operating income at the higher end of its $45 million to $50 million range.

RTI's markets include major aircraft makers including Airbus and Boeing, Bell helicopters and military and private jets.

Medivation down in line

Medivation's 2.625% convertible senior notes due 2017 were seen down in line at 127.5 versus the underlying closing share price of $51.15.

That compared to an intraday trade of 129.875 versus a share price of $52.73. And the level was quoted at the outset of the session at 130.125 bid, 130.875 offered versus an underlying share price of $53.50.

The bonds trade on about a 75% delta and were seen moving down in line, sources said.

Medivation shares opened at $52.72 and closed at $51.15, which was up 3 cents from the previous day.

Medivation said that its partner, Astellas Pharma Inc. of Japan, reported fiscal second-quarter results in which it said, among other things, that net quarterly sales of XTANDI (enzalutamide) capsules in the United States were $14 million for the 12 business days beginning Sept. 13 when XTANDI first became available.

Astellas said that sales of XTANDI in the United States for its fiscal year ending March 31, 2013 should be about $100 million.

Medivation plans to report its own financial results for the quarter ended Sept. 30, 2012 on Nov. 9.

Greenbrier down in line

Greenbrier's 3.5% convertibles due 2018 were quoted at 89 bid, 90 offered during the session, which was down from a previous level "wrapped around 93," according to a trader.

A second sellsider said they were 87.5 bid.

The bonds trade on about a 60% delta.

Greenbrier shares fell $2.92, or 17%, to $14.49 in heavy volume.

The Lake Oswego, Ore.-based railcar maker reported quarterly profit that was less than half of what analysts had expected due to delays in deliveries and a higher tax rate, the company said.

The company also forecast a weak 2013.

Net income fell to $7.4 million, or 26 cents per share, from $12.6 million, or 42 cents per share, in the year-earlier quarter. Revenue rose slightly to $443.5 million.

Analysts had expected earnings of 57 cents per share on revenue of $498.5 million.

Greenbrier sold its $230 million of the 3.5% seven-year convertibles in April 2011 with a 37.5% premium.

Mentioned in this article:

Greenbrier Cos. Inc. NYSE: GBX

Medivation Inc. Nasdaq: MDVN

RTI International Metals Inc. NYSE: RTI

VeriSign Inc. Nasdaq: VRSN

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