Convertibles end month on stable note; Endo Health trades amid takeout talk; Take-two down

By Rebecca Melvin

New York, Jan. 31 - Convertible bonds ended the month on the quiet side Thursday, with pricing seen as stable to slightly better bid, market players said.

"There was nothing outstanding. Nothing really moved too much," a New York-based trader said.

The trader said that themes that have been in play for a while continued to play out: Convertible bonds with more yield were in demand, and pricing was firm; and, more equity sensitive names, with volatility, were more for sale.

Part of the lack of activity was attributed to month-end bookkeeping, as traders kept their heads down and began to mark their holdings' prices. "It will probably be quiet at the start of tomorrow as well," the trader said.

On the back of stellar gains in the equity markets, January was seen as a positive month for convertible returns too. Several sources said that based on informal discussions they thought hedged returns for the month were coming in positive by 1% to 2%.

But one East Coast-based buysider said he heard "People were anywhere from down to up 1% to 2%."

Regarding trading action on Thursday, one issue that was more active than usual was Endo Health Solutions Inc.'s 1.75% convertibles amid speculation that the Chadds Ford, Pa.-based drugmaker is shopping itself around and likely to find a suitable buyer.

"I think there is a good chance the company gets sold," an East Coast-based buysider said.

Another name that hit the most active lists was Take-Two Interactive Software Inc., and that issue was down about 5 points on a 7% drop in the underlying shares of the New York-based video game publisher.

Meanwhile, KB Home, which priced an upsized $200 million of 1.375% convertibles last week, traded down 0.25 point to 0.5 point to 101 on Thursday. D.R. Horton Inc., which is also in the homebuilder sector, saw its 2% convertibles due 2014 trade at 181.363, which was down 1.627 points despite the underlying shares of the Fort Worth-based homebuilder gaining 2.5% on the day.

A flurry of new deals from U.S. homebuilders has hit the high-yield market in recent days. Among issuers of high-yield debt were Lennar Corp., D.R. Horton, Beazer Homes USA Inc., Weekley Homes and Ashton Wood USA.

D.R. Horton raised $700 million in a two-part offering of five- and 10-year notes on Wednesday. And Lennar raised a downsized $450 million of six-year notes and an add-on to its 4.75% notes due 2022 also on Wednesday.

Endo adds on speculation

Endo's 1.75% convertibles due 2015 traded at 124, which was up 1.5 points on the day, according to Trace data.

Endo shares ended unchanged at $31.66, after spending the early part of the session in positive territory.

In December the bonds traded at 111 versus an underlying share price of $26.65.

But shares hit a four-month high Wednesday on reports that it is in exploratory talks with parties such as Ireland's Warner Chilcott plc, and they ended trading up nearly 11% to $31.66.

"Several different take out targets have been mentioned, and a price in the low $40s seems reasonable to me. The bonds have some takeover protection and would perform well outright and on hedge with that type of price," a buysider said.

Endo chief executive David Holveck announced in December that he plans to retire this year in May. In addition, Endo's pain relieving patch Lidoderm is set to face competition from Sept. 15, 2013 when Watson Pharmaceuticals Inc. plans to launch a generic version.

Endoderm is a diversified health care company that make prescription drugs used primarily to treat and manage pain.

Take-Two drops

Take-Two's 4.375% convertibles due 2014 traded around midsession at 129.346, which was down 5.279 points, according to Trace data. The issue traded in good volume.

Take-Two's 1.75% convertibles due 2016 traded down a point to 101.

Shares of the New York-based video game publisher fell 89 cents, or 7%, to $12.17. But for the month, shares have posted a nearly 18% gain.

Take-Two, the maker of "Grand Theft Auto" games, said that its next installment will come out in September instead of when it had originally been expected to debut in spring.

The company said that the delay will give developers more time to work on it.

Analysts were seeing the bright side of the delay, proposing that it was better for the game to come out later and bug-free, rather than earlier with flaws.

Games with problems are quickly panned in the social media and the increased critical scrutiny weighs heavily on sales.

U.S. video game retail sales of new hardware, software and accessories fell 22% in 2012, according to recent data from NPD Group. Sales fell to $13.26 billion, from $17 billion.

Likewise for December alone, sales were down 20% to 26%.

Take-Two is due to report third-quarter financial results on Tuesday.

Mentioned in this article:

Beazer Homes USA Inc. NYSE: BZH

D.R. Horton Inc. NYSE: DHI

KB Homes NYSE: KBH

Lennar Corp. NYSE: LEN

Endo Health Solutions Inc. Nasdaq: ENDP

Take-Two Interactive Software Inc. Nasdaq: TTWO

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.