American Realty lower; Isis Pharmaceuticals paper drops outright, ‘comes in’ on hedge

By Rebecca Melvin

New York, Dec. 15 – American Realty Capital Properties Inc.’s convertibles fell sharply Monday after news that three top executives at the firm have resigned.

The company’s managing partner, Nicholas S. Schorsch, resigned as executive chairman and director. David Kay, the company’s chief executive, and Lisa Beeson, president and chief operating officer, have also stepped down from the New York-based real estate investment trust.

The company’s convertibles dropped about 2.5 points to 90, having pared early losses of 3 or 4 points. At the end of October, these bonds dropped to the low 90s from the high 90s after news of accounting errors and the resignations of its chief financial officer and chief accounting officer due to allegedly intentional accounting mistakes.

Elsewhere, Isis Pharmaceuticals Inc.’s 1% convertible bonds traded down sharply on an outright basis and came in on a dollar-neutral, or hedged, basis as shares of the Carlsbad, Calif.-based developer of gene-based therapeutic drugs fell 8.7%.

Overall, the convertibles market was weak, beginning the week where it left off last week as crude oil prices extended sharp losses.

West Texas intermediate crude for January delivery fell another $2.50, or 4.3%, to $55.31 a barrel.

The S&P 500 stock index shed 12.70 points, or 0.6%, to 1,989.63, the Dow Jones industrial average fell 99.99 points, or 0.6%, to 17,180.84, and the Nasdaq stock index dropped 48.44 points, or 1%, to 4,605.16.

The Russian ruble tumbled, and that country’s central bank said it has decided to hike its key interest rate to 17% from 10.5%.

Back in convertibles, some liquid, in-the-money convertibles were for sale, and there was very little market bid, as some market players attempted to raise cash and others opted to stand pat.

Some market players don’t intend to trade again this year, a New York-based trader said.

A second trader concurred, saying, “Last week was pretty busy, and I thought that might continue especially with the S&P and credit lower and the market turmoil.”

“A lot is going on behind the scenes in the energy space,” the trader said, describing the straight bonds of one midsized oil and gas E&P company, which hadn’t traded in about three weeks, and which traded at 65 on Monday, moving down from the mid 90s last on Nov. 26.

Penn Virginia Corp.’s 6% convertible preferred shares were indicated down to 93.74 on Monday from 98.83, according to a market source. Shares of the shale producer were down 33 cents, or 6.8%, to $4.51.

American Realty down

American Realty’s 3% convertibles due 2018 traded down to as low as 88.25, which was off more than 4 points on the day, according to Trace data. But those notes came back up to 90 by day’s end against a share price of $8.23, which was down 8.5%.

American Realty’s 3.75% convertibles due 2020 traded down 4.125 points to 87.625 at the beginning of the session and also recouped some by the close.

Shares of the REIT fell 76 cents, or nearly 8.5%, to $8.23.

“They were down about 2.5 points. The last print was 90, and last week they were trading 92 to 92.5,” a New York-based trader said.

“They’ve come in,” a second New York-based sellside source said.

Even though there was some recovery of the bonds’ pricing, “people are waiting for the next shoe to drop. Something is still out there. We went from a situation where it seemed like not much threat to leadership to one in which it seems that leadership is part of the problem,” a trader said.

The company said in its release that to date there has not been any conclusion of unlawful conduct by Schorsch but that the company’s audit committee investigation is continuing.

American Realty Capital Properties is a REIT focused on single-tenant properties.

Isis comes in a point

Isis Pharmaceuticals’ 1% convertibles due 2021 traded down to 106.75 from about 114.5 previously.

On a delta of about 75%, the bonds contracted about a point.

Isis shares fell $5.39, or 8.7%, to $56.93.

“It was not very positive,” a New York-based trader said.

These are cheaper from an implied vol. perspective, and I thought they were pretty cheap to begin with; they have a pretty full pipeline,” the trader said.

Nevertheless, the bonds are still higher from issue on Nov. 11 when the stock was at $50.00.

On Monday, the stock went to $57.00 from $62.00.

Isis priced the $425 million of the seven-year notes at the cheap end of talked terms last month.

Mentioned in this article:

American Realty Capital Properties Inc. Nasdaq: ARCP

Isis Pharmaceuticals Inc. Nasdaq: ISIS

Penn Virginia Corp. NYSE: PVA

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