Convertibles improve; Horizon Pharma paper weakens amid Depomed battle; Chesapeake lower

By Stephanie N. Rotondo

Phoenix, Sept. 29 – The convertible bond market was trying to recoup some of the previous day’s losses in Tuesday trading.

Still, a trader said “nothing is up big. Everything was quoted down a quarter to a half [point] yesterday, and it’s back up a quarter this morning.”

The trader added that while overall volume was “a little better,” there was “nothing chunky of any sort, just ones and twos.”

Horizon Pharma plc’s 2.5% convertible notes due 2022, however, traded lower on the day.

One trader said the bonds were off 4.5 points outright toward the end of the day, trading at 90.6. The notes were down nearly 2 points at mid-morning, trading with a 93 handle.

The stock retreated $1.20, or 6.64%, to $16.81.

The weakness came as the Irish pharmaceutical company continued to trade barbs with Depomed Inc. Horizon has been looking to take the company over since May in an all-stock offer, but Depomed’s board of directors has thrice refused any takeover attempts.

On Monday, Depomed called out Horizon, stating that the company was making false claims to Depomed shareholders. For its part, Horizon has been pushing for Depomed to hold a special shareholder meeting to allow holders to vote on a potential offer, instead of rejecting the bid outright. Horizon has used an advisory firm’s recommendation for such a meeting as the basis of its argument, though the recommendation does not encourage shareholders to vote one way or another.

“That’s never good,” a trader said of the acrimonious takeover bid. “It’s a distraction from regular business,” which he opined was likely the cause of the decline.

Chesapeake down on layoffs

Chesapeake Energy Corp. announced a round of layoffs on Tuesday as the Oklahoma City-based oil and gas producer struggles amid a low oil price environment.

“This stuff just blew out yesterday,” one trader noted, referring to Monday’s sell-off that was spurred in part by a hefty downturn in commodities. Come Tuesday, the 2.5% convertible notes due 2037 were down “1.5 points further,” trading at 86.

The trader added that the bonds had drifted down to 87.625 from 88.75 on Monday and that it was a dealer buying up paper.

“Then they turned around and sold it at 86,” he said.

As for the 2.75% convertible notes due 2035, the trader saw no trades of size in the issue, though he saw the paper at 98.625 on Monday. That equaled about a 13.5% yield to put in November, he said.

While the bonds drifted down, the stock climbed up on the news, rising 8 cents, or 1.19%, to $6.79.

Chesapeake was said to be cutting about 15% of its total workforce, with the layoffs occurring at every level. The company is expected to take a one-time charge of $55.5 million in the third quarter related to payroll taxes.

Those getting the axe are reportedly receiving “generous” severance packages.

SunEdison trades

A trader said SunEdison Inc. was on the busier side in Tuesday trading, with “six different issues” hitting the tape.

The most active of the convertible notes was the 2.625% paper due 2023 – an issue priced in May and slated to pay its first coupon payment in December.

The trader said the bonds were trading at 57.5.

“Every time you have multiple [convertible] issues at the same company, this is what happens,” the trader said of the bonds’ quick descent. “One or two [issues] is one thing, but you can’t have that many issues out and tell me everything is flying and then come back to the table for more food.”

The solar company’s stock finished off 31 cents, or 4.45%, at $6.66.

Mentioned in this article:

Horizon Pharma plc Nasdaq: HZNP

Chesapeake Energy Corp. NYSE: CHK

SunEdison Inc. NYSE: SUNE

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