American Realty lower in line; InterMune active since drug data; Cobalt trades in line

By Rebecca Melvin

New York, May 21 - American Realty Capital Properties Inc.'s convertibles traded actively on Wednesday and were lower in line with their underlying shares, which dropped 5% after the New York-based real estate investment company said it is selling assets and offering 100 million shares of common stock after the market close.

"The deal was good for the credit," a New York-based trader said. "The straight debt tightened by about 5 to 10 basis points, and the convertibles kind of followed suit."

Also in the REIT space, Spirit Realty Capital Inc.'s longer-dated 3.75% convertibles due 2020, which priced last week, improved by another 0.25 point on a hedged basis as shares of the Scottsdale, Ariz.-based REIT traded flat to lower, ending down 0.4%.

InterMune Inc.'s convertibles continued to remain active following cheapening at the beginning of the week on a move up in the underlying shares following positive drug trial data for the Brisbane, Calif.-based biotechnology company, one trader noted. The bonds were up on an outright basis as the shares added 3.8%.

Houston-based oil exploration and production company Cobalt International Energy Inc.'s convertibles traded mostly in line with shares that were up 2.6% on the day.

E-House (China) Holdings Ltd.'s convertibles were quoted up Wednesday as shares extended gains - having jumped 13% on Tuesday - on better-than-expected earnings from the Shanghai-based real estate services company. Shares gained another 8% on Wednesday.

Meanwhile, cloud computing company Salesforce.com Inc. saw its two convertible bonds slip on an outright basis in active trade on a 5% decline in the underlying shares.

Salesforce.com's 0.25% convertibles due 2018 traded down 2.3 points to 109.1, according to Trace data. Salesforce's 0.75% convertibles were indicated down to 234.62 from 247.88, according to a market source. Shares fell $2.70, or 5%, to $50.19.

Overall, "there were decent two-way flows, but the market is still not robust," a trader said.

In the primary market, Post Holdings Inc. was on the calendar to price $200 million tangible equity units late Wednesday.

Equities gained, recouping Tuesday's losses, following the release of minutes from the Federal Reserve's last policy meeting at the end of April. The minutes showed that the central bank is planning for an eventual rise in interest rates and continued trimming of its bond-buying program.

The Dow Jones industrial average rose 158.75 points, or nearly 1%, to 16,533.06, after dropping 138 points, or 0.8%, on Tuesday. The S&P 500 stock index gained 15.2 points, or 0.8%, to 1,888.03, after dropping 12 points, or 0.7% on Tuesday, and the Nasdaq Composite stock index gained 34.65 points, or 0.9%, to 4,131.54 after a 29-point drop on Tuesday.

American Realty in line

Both of the American Realty convertible bonds were trading actively and seen down in line with the underlying shares at the end of the session. Earlier, the paper was seen up a point on a dollar-neutral basis with the stock down 4%.

American Realty's 3% convertible due 2018, which was the more actively traded issue, according to Trace data, traded last at 102.94 which was down from 103.3 earlier.

American Realty's 3.75% convertibles due 2020 traded at 104.70 last, down on an outright basis from 105.25 bid, 105.5 offered on Tuesday.

The bonds traded on deltas of about 25% and 35%, respectively.

American Realty shares fell 64 cents, or 5%, to $12.26, which represented a one-year low.

The New York-based REIT, which has mostly single-tenant properties in its asset portfolios, is planning to sell its multi-tenant shopping center portfolio to affiliates of Blackstone Real Estate Partners VII for $1.98 billion. It is also selling $100 million of common shares.

With proceeds, the company plans to fund its purchase of Red Lobster's real estate portfolio. It also increased its full-year target for acquisitions to $4.5 billion.

InterMune risk 'manageable'

The InterMune convertibles continued to remain active as they have been since Monday when positive drug data boosted the stock 13%. At that time, the 2.5% convertibles due 2018 jumped to about 140 from about 130 on an outright basis, but the move was not enough to keep in step with the shares in terms of valuation.

"The bonds initially cheapened on the move up in the common on positive data released over the weekend. But the premium has come in to the point in which the takeout risk now looks very manageable from a hedged perspective," a trader said.

The 2018 convertibles were quoted at 138.5 bid, 138.75 offered versus an underlying share price of $38.52 at the end of Wednesday.

The InterMune 2.5% convertibles due 2017 were not heard in trade, but they were indicated at 303.96 at the end of Wednesday, which was up from 294.18 previously.

InterMune shares gained $1.43, or 3.8%, to $38.83.

The Brisbane, Calif.-based biotechnology company said over the weekend that positive data on its Esbriet lung disease drug could lead to U.S. regulatory approval. InterMune will resubmit its drug approval request in the next few weeks, with an eye toward getting the drug on the market in the first quarter of 2015.

The European Commission granted marketing authorization for Esbriet for the treatment of adults with mild to moderate idiopathic pulmonary fibrosis in early 2011. Canada approved Esbriet for IPF treatment in adults in October 2012.

Cobalt bonds trade in line

Cobalt's newer 3.125% convertibles due 2024, which priced earlier this month, were seen up a point on Wednesday to 104.25, according to Trace data.

Cobalt's 2.625% convertibles due 2019 were about 0.125 point better at 92.75.

Cobalt shares ended higher at $17.65, which was up 45 cents, or 2.6%.

The bonds were called "in line" by a New York-based trader.

E-House adds outright

E-House's 2.75% convertibles due 2018 were quoted at 93.5 bid, 94.25 offered versus an underlying share price of $9.50, a Connecticut-based trader said.

Shares ended higher at $9.95, which was higher by 73 cents, or 8%.

On Tuesday, the bonds were indicated to have risen to 91.5 bid, 92 offered from 86.5 bid, 87 offered.

E-House shares hit $10.00 early Wednesday before peeling back a bit as they continue to react to strong earnings for the three months ending in March. Profit came in at 3 cents per share, which was double what analysts were expecting, and revenue was up 40% from the year earlier period to $163.3 million, which was better than estimates.

E-House priced the downsized $135 million of convertible senior notes at a discount to par of 97.5 in December when the underlying shares were about $13.80.

Mentioned in this article:

American Realty Capital Properties Inc. Nasdaq: ARCP

Cobalt International Energy Inc. NYSE: CIE

E-House (China) Holdings Ltd. NYSE: EJ

InterMune Inc. Nasdaq: ITMN

Post Holdings Inc. Nasdaq: POST

Salesforce.com Inc. NYSE: CRM

Spirit Realty Corp. NYSE: SRC

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