Molycorp bonds mauled on poor earnings; Cliffs also clobbered; hard-hit Aegerion comes back

By Paul Deckelman

New York, Nov. 6 – Molycorp Inc.’s bonds slid badly on Thursday after the rare-earth mining concern reported a much wider quarterly loss amid a toxic mix of lower pricing, lower volume and higher costs.

The company’s convertible notes were also seen taking it on the chin.

Distressed-debt traders said that Cliffs Natural Resources Inc.’s bonds were in some cases several points lower, reflecting continued weak commodity prices in the energy space.

However, some of its coal-sector peers such as Arch Coal Inc., Alpha Natural Resources, Inc. and Walter Energy, Inc. were better.

But other energy names, such as Goodrich Petroleum Corp., were seen lower.

In the convertibles market, apart from the Molycorp paper, which, as noted was down along with its junk bonds and its underlying shares, Solazyme Inc.’s convertibles were sharply lower amid a 58% slide in the underlying shares of the bio-industrial company to $3.14 following disappointing earnings and production plant problems.

Recently hard-hit Aegerion Pharmaceuticals Inc.’s convertibles were on the rebound after having gotten clubbed on Friday on a third-quarter earnings miss and amid allegations tying the company’s chief executive officer to a scandal swirling around Jefferies’ global head of health-care investment banking.

After the market close, Salix Pharmaceuticals Ltd. was being closely watched following disappointing earnings and the resignation of the chief financial officer of the Raleigh, N.C.-based drug company.

Molycorp gets mauled

A trader said that Molycorp’s 10% notes due 2020 had nosedived by 5¼ points on the day to end at 66¾ bid, on “a lot of trades.”

Another market source saw more than $14 million of the Greenwood Village, Colo.-based rare earths miner’s notes having traded at similar levels.

“They hit their all-time low as their quarterly loss widened,” he said.

Its 6% convertibles due 2017 meanwhile traded down to the low 30s from the mid-30s, while the underlying New York Stock Exchange-traded shares fell 13 cents, or 9.22%, to $1.28. Volume of about 8 million shares was double the norm.

On Wednesday, the company had reported an adjusted net loss of 40 cents a share for the quarter ended Sept. 30 – its 11th consecutive quarterly decline. The loss was far wider than the 25 cents to 27 cents of red ink that Wall Street had been looking for.

Energy names topical

A trader said that the energy and resources sectors “remained under pressure, with oil prices remaining weak.”

A trader said that California Resources Corp.’s bonds were “a little lower” than where the Los Angeles-based exploration and production company’s paper had traded on Wednesday.

He saw its 6% notes due 2024 at about the 99 level, down from about 100½ bid on Wednesday, while also seeing its 5% notes due 2020 and 5½% notes due 2021 also easier.

A trader said that Goodrich Petroleum’s 8 7/8% notes due 2019 were quoted “down a dozen points” at 79 bid. But he noted that the paper had not traded since Oct. 21, when they were last seen at 91 bid. There was no fresh negative news seen out on the Houston-based energy E&P company.

Among the coal names, “Cliffs Resources were all lower,” the trader said, seeing the Cleveland-based company’s 4 7/8% notes due 2021 down 1¾ points at 78 bid, while its 3.95% notes due 2018 lost 1 point to end at 85. Its 6¼% paper was down a deuce at 69 bid.

However, the trader saw other coal names such as Arch, Alpha Natural Resources and Walter Energy all about ¼ to ½ point better.

Convertibles under pressure

In the convertibles market, Solazyme’s convertibles were sharply lower amid a slide in the underlying shares of the bio-industrial company to $3.14 following disappointing earnings and production plant problems.

Meanwhile, after the market close, Salix Pharmaceuticals was being closely watched following disappointing earnings and the resignation of its CFO.

Salix’s 1.5% convertibles due 2019 trade in the 200s. Its 2.75% convertibles due 2015 trade close to 300, a trader said.

“They will nuke down with the shares. The question is, where will the stock open?” he said, referring to Friday’s trading action in this name.

Salix shares dropped in after-hours trading to $88.00, which was down $51.55, or 37%.

“The stock is blowing up,” the trader said. “What happens to the bonds will depend on what kind of deltas holders were on.”

Salix was a takeout play, and so “arbs could have been light and might have been hurt a little bit,” he said.

The company reported a loss of $88.6 million, or $1.39 per share, for the third quarter. Excluding items, earnings were $1.53 per share, which was about 3 cents below expectations.

Revenue was higher compared to a year ago at $354.7 million but still below expectations.

Aegerion improves

On the other hand, recently beleaguered Aegerion Pharmaceuticals’ 2% convertibles traded up a couple of points on an outright basis and expanded on a dollar-neutral basis after the Cambridge, Mass.-based biopharmaceutical company announced that it is acquiring an orphan drug from AstraZeneca.

The 2% convertibles due 2019 traded up a couple of points to 84.375 bid, 85.125 offered versus an underlying share price of $21.98 on Thursday. That was up from 82.125 bid, 82.875 offered previously.

“The Aegerion convertibles opened up on the back of an acquisition, and they were the most actively traded bonds in the health-care space,” a trader said.

They were up about 2 points on an outright basis and 0.5 point to a point on hedge.

Shares were also up 8%.

Aegerion tumbled last Friday on a third-quarter earnings miss and amid allegations tying the company’s CEO to a scandal swirling around Jefferies’ global head of health-care investment banking.

A trader said that the stock “got smoked” on bad numbers and the drugs and sex scandal surrounding Jefferies’ health-care investment banking head. “But they have been doing better after the hard sell-off, and today they announced an acquisition,” the trader said.

The Cambridge, Mass.-based company said that it is acquiring AstraZeneca’s orphan drug Myalept (metreleptin for injection) that is indicated to treat complications of leptin deficiency in patients with generalized lipodystrophy.

Under terms of the agreement, Aegerion will pay AstraZeneca $325 million up front to acquire the global rights to develop, manufacture and commercialize Myalept, subject to an existing distributor license with Shionogi covering Japan, South Korea and Taiwan.

Rebecca Melvin contributed to this review

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