InterMune gains outright; lighter delta yields better hedge move; MGIC, NuVasive active

By Rebecca Melvin

New York, Dec. 17 - InterMune Inc. skyrocketed higher in heavy volume Friday with the InterMune 5% convertibles expanding between several points to up to 10 points - better as the day went on - as the underlying shares surged on a panel decision that signals approval for sale of the company's lung-disease drug in the European Union.

"The name of the day is InterMune; the stock is up huge," a New York-based sellsider said.

Other names in trade Friday on big moves in their underlying shares included MGIC Investment Corp.'s 9% convertibles due 2963, which traded at 107.5 versus a share price of $9.55, with the stock up 5% on the day; and NuVasive Inc.'s 2.25% convertibles due 2013, which traded at 96.5 versus a share price of $24.00, which was up 8% on the day.

Clearwire Corp.'s recently priced 8.25% convertibles traded stronger Friday despite lower shares. The newish bonds traded at 102 versus a share price of $5.30, which was higher both outright and on a dollar-neutral basis compared to 101.25 versus a share price of $5.35 on Thursday, and compared to 100.5 versus a share price of $5.40 on Wednesday, according to a New York-based sellside desk analyst.

Overall volumes were light on Friday as activity has begun to wane ahead of Christmas.

The convertibles bond market traded mostly mixed this past week, with the market seeing a few last-minute new deals launch and price.

Market players have been pleased with a recent increase in new issuance activity and feel that it bodes well for the primary market in 2011, although issuance levels for full year 2010 will still amount to an anemic amount given the low-rate environment and competition that convertibles faced from the high-yield debt market.

Two of the three new deals pricing in the past week saw respectable aftermarket trading - although they were definitely not everyone's cup of tea.

Home Inns & Hotels Management Inc.'s newly priced 2% convertibles traded up over 102 when the underlying shares were higher and finished around 101.25 on their debut in secondary dealings Wednesday. The bonds of the Shanghai-based hotel chain operator, which are based on its American Depositary Shares, have difficult borrow.

Swift Transportation Co.'s newly priced 6% mandatory convertibles traded right around par and closed slightly higher on their debut Thursday as the underlying shares recouped losses from an early slide. The Phoenix-based trucking company priced a concurrent initial public offering, so it had a difficult borrow as well plus somewhat dicey credit standing.

Prospect Capital Corp.'s newly priced 6.25% convertible senior notes were not heard in trade Thursday after the New York venture capital and private equity firm priced $150 million of notes in an overnight deal.

"There was not too much going on and not too much to say. The Home Inns looked kind of decent; versus a share price of $42.25, they were probably 102.75 bid, 103.25 offered," the New York-based sellside trader said.

InterMune up on lighter delta

InterMune's 5% convertibles due 2015 traded at 192 versus a share price of $32.00 on Friday, according to a New York-based sellside desk analyst. The InterMune 5% bonds also traded at 195 and over double par later in the session.

The 5% bonds were 105 bid 106 offered versus a $13.50 share price on Tuesday, which was up depending on hedge anywhere from a point or two if on a heavier delta to maybe 5 points to 10 points higher on a lighter delta, a New York-based sellside trader said.

"If you were on an 80% delta, you were up several points, and if you were lighter, it was more," the trader said.

"It means nothing to quote those prices without a stock price," the trader said, adding that it looked as though the bonds got better through the course of the day from early prints.

"Every few months there seems to be a ruling that comes out that totally changes it," he said of the outlook for InterMune.

InterMune's 0.25% convertibles due 2011 weren't trading actively as those bonds have less than $50 million outstanding and have only a few months left before maturity.

InterMune is seeking to have its lung-disease drug pirfenidone, also known as Esbriet, approved for the treatment of a lung disease known as idiopathic pulmonary fibrosis.

The Brisbane, Calif.-based biotechnology company said Friday that an advisory panel recommended Esbriet, and while that means that it's likely the European Medicines Agency will approve it, it doesn't guarantee that the regulators will accept the panel's recommendation.

InterMune stock surged $20.62, or 144.5%, to $34.89 on Friday.

Mentioned in this article:

Clearwire Corp. Nasdaq: CLWR

Home Inns & Hotels Management Inc. Nasdaq: ADS: HMIN

InterMune Inc. Nasdaq: ITMN

MGIC Investment Corp. NYSE: MTG

NuVasive Inc. Nasdaq: NUVA

Prospect Capital Corp. Nasdaq: PSEC

Swift Transportation Co. Nasdaq: SWFT

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