Medicines expands on swap on positive drug data; energy names hesitate on oil’s reversal

By Rebecca Melvin

New York, Aug. 31 – U.S. convertibles players mostly tidied up their portfolios on the last day of August on Monday. A sharp reversal upward in oil prices was largely ignored, but there was action in the Medicines Co., which jumped outright and expanded on swap after news of a positive early study for the Parsippany, N.J.-based health care company’s cholesterol drug.

The bulk of last week’s wild market swings in the financial markets didn’t end up amounting to much in the convertibles space, and the three-day rally in crude oil prices wasn’t yet matched by convertibles energy names, a New York-based trader said.

“No names seem to have rebounded yet,” the trader said of the energy sector, although Chesapeake Energy Corp. was a little firmer, he added. And bellwether Whiting Petroleum Corp.’s 1.25% convertibles were seen higher at 85 from about 82 previously.

A second New York-based trader said that most convertibles players were marking their books and not focused on energy names on Monday.

“It was a tough month,” the trader said.

But most of the pain was felt in only a few beaten down names including Ctrip.com International Ltd. and SunEdison Inc.

SunEdison, a serial convertibles issuer that priced new paper in the middle of the month, saw those new preferred shares slide into the upper 70s from par in less than two weeks.

Also on Monday, Yahoo! Inc.’s 0% convertibles were trading stronger even though shares of the Sunnyvale, Calif.-based internet company were weak.

One trader said that the Yahoo! convertibles were better on swap by as much as a point in the last week. A second trader said the Yahoo! bond was being bandied about on the Street but not trading much, which was something that was true of many names last week.

A lot of people were just trading their deltas, the trader said, referring to stock held in tandem with the convertible’s long position.

Regarding the majority of last week’s trades, “Nothing expanded,” the trader said.

He said that the bond market leaked a touch, but credit tightened back in by the end of the week, “so there was nothing remarkable.”

In the broader markets, equities were lower on the day and suffered their biggest monthly decline since 2008 this August. But convertibles, while lower on the month, held in pretty well.

However, as convertibles players look ahead to September, the last month of the quarter, they may be inclined to sell some of the issues that have been unprofitable – especially the biggest losers, a New York-based trader said.

“When we’re talking about coal or oil, however, most that that paper is priced way down already,” he said.

In Monday’s economic news, the Chicago purchasing managers' index (PMI) for August came in at 54.4, which missed estimates as well as last month's reading but still indicated expansion.

Crude oil futures for October delivery gained $2.65 to $47.86 a barrel on the New York Mercantile Exchange as of 1:46 p.m. ET. West Texas intermediate crude jumped another 6.5% on Friday to $45.32 per barrel, adding to a 10% rally on Thursday.

The CBOE volatility index traded near 27.

For Monday alone, the Nasdaq composite index fell about 52 points, or 1%, to 4,776.51; the S&P 500 stock index lost another 16.69 points, or 0.8%, to 1,972.18 and the Dow Jones industrial average lost 115 points, or 0.7%, to 16,528.03.

For the week last week, the S&P 500 ended up about 1%.

Medicines jumps on trial data

Medicines’ 1.375% convertibles due 2017 traded up 15 points to 146.50 by late morning and was up 2 points on swap, according to market sources. The bonds ended even better at 151 to 152 as shares pulled higher.

Medicines’ 2.5% convertibles due 2022 were up 14.5 points on an outright basis to 135 bid, 136 offered versus an underlying share price of $40.00 and were seen up as much as 3 points on swap, sources said.

Medicines shares surged $7.36, or 22% to $41.00.

Medicines’ drug development partner Alnylam Pharmaceuticals Inc. announced that its investigational RNAi therapeutic lowered cholesterol up to 83% with a mean maximum reduction of up to 64%, plus or minus 5%, in an early stage study.

The Medicines convertibles were very active and essentially the name of the day, sources said.

Yahoo! expands

Yahoo!’s 0% convertibles were quoted at 102.875 bid, 103.875 offered versus an underlying share price of $32.54 on Monday. That was up more than 1 point on swap in the last one to two weeks, a Connecticut-based trader said.

Yahoo! shares fell 90 cents, or 2.7%, to $32.24.

Yahoo! was trading up amid chatter that holders are pushing the company to treat the Alibaba Group spinoff as a change of control, the trader said.

A second trader said that many of the convertibles of large capitalization companies were “moving around.”

“They got quoted down but didn’t trade down last week,” he said.

There wasn’t that much that changed last week, he said.

Mentioned in this article:

Chesapeake Energy Corp. NYSE: CHK

Ctrip.com International Ltd. Nasdaq: CTRP

The Medicines Co. Ltd. Nasdaq: MDCO

SunEdison Inc. Nasdaq: SUNE

Whiting Petroleum Corp. NYSE: WLL

Yahoo! Inc. Nasdaq: YHOO

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