Electronics for Imaging bonds drop on accounting troubles; Teva convertibles falter

By Stephanie N. Rotondo

Seattle, Aug. 4 – A convertible bond trader said Electronics for Imaging Inc.’s 0.75% convertible notes due 2019 were “the only thing trading” on Friday, as the company announced accounting issues that would delay the filing of its second-quarter results.

At day’s end, the convertibles were pegged in a 94.5 to 95.5 context, down from previous levels around 107.

At another desk, the issue was seen at 94.5, a decline of over 12.5 points.

A trader placed the paper at 94.5 against a stock price of $27.25 at mid-morning, noting “it’s had different valuations across the morning.”

As for the company’s stock, it was not faring well either, dropping $21.61, or 45.34%, to $26.05.

The company said it was conducting an internal review of its accounting practices and that it “expects to report a material weakness in internal control over financial reporting related to this matter.

“EFI also expects to report that EFI’s disclosure controls were not effective in prior periods,” the company added.

Meanwhile, Teva Pharmaceutical Industries Ltd. was another active name in the wake of the company’s weaker-than-expected quarterly results.

In the 0.25% convertible notes due 2026, a trader said “a vast majority of prints” took place between 96 and 96.5.

Another source also saw the notes in that range, calling it down 2 to 3 points.

The underlying equity declined $3.15, or 13.26%, to $20.60.

For the second quarter, Teva reported adjusted earnings per share of 99 cents. That compared to $1.22 a share the year before.

Revenue was $5.69 billion.

Zacks Consensus Estimate had forecast adjusted EPS of $1.06 a share on revenue of $5.85 billion.

The bright spot of the results was that sales improved 13%, due in large part to the inclusion of revenue from Actavis Generics, a unit acquired from Allergan plc in August 2016.

For its part, Allergan said after the release that it was considering selling its stake in Teva within the next few months.

Excluding the Actavis sales, however, the figures were below expectations.

But the lackluster results weren’t the only issue. The Israel-based pharmaceutical company also cut its common stock dividend by 75% and announced more job cuts.

Furthermore, Teva said it could be in danger of breaching debt covenants if its sales don’t continue to improve.

And it doesn’t stop there. Teva has been without a chief executive officer for six months and has struggled to attract candidates.

On the heels of the results, Fitch Ratings cut its issuer default rating on the company to BBB- from BBB. The revision was due to the operational stress it’s facing after the Actavis purchase, during a time when debt reduction and leverage needs to improve.

Mentioned in this article:

Electronics for Imaging Inc. Nasdaq: EFII

Teva Pharmaceutical Industries Ltd. NYSE: TEVA

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