Convertibles down in line with lower equities; Horizon Pharma falters; SunEdison steady

By Rebecca Melvin

New York, Dec. 11 – U.S. convertibles traded mostly lower on Friday as oil prices and equity markets slid and the slow grind to year-end remained underway.

The International Energy Agency reported that the global oversupply of oil could worsen next year, and West Texas Intermediate crude for January delivery fell $1.11, or 3%, to $35.62, extending losses for a 10% decline on the week. Meanwhile, Brent crude oil fell 4.4% on the day, and stock markets sold off, with the Nasdaq Composite index underperforming, for a 111.71 point, or 2.22%, loss for the day to 4,933.47.

Horizon Pharma plc’s convertibles traded down 3 points outright to 92.43, against a 7% decline in the underlying shares to $18.99. The sell-off was precipitated by news that the specialty drug maker is buying Crealta Holdings LLC for $510 million in cash. Crealta owns a treatment for a rare form of arthritis.

Last month, Horizon withdrew its hostile takeover offer for specialty drug company Depomed Inc. Horizon is under fire, along with other companies like Valeant Pharmaceuticals International Inc., for its drug pricing practices.

Navistar International Corp.’s securities were lower again on Friday, with the shares closing off 5.6% to $8.85, after an 18% slide on Thursday. There was no real news behind the blistering drop, and Navistar’s 4.75% convertibles due 2019 traded down to 44.5 on decent volume.

But despite pain evident in the broader markets, many convertibles were relatively reserved.

“People are scared to do anything right now. Even the guys that are doing OK are reticent to step in and buy someone else’s pain. They don’t want to see anything banged up on someone else’s pad; they don’t even want to look at it,” a New York-based trader said.

Ares Capital Corp.’s near-dated convertibles were trading in size on Friday at levels that were little changed despite a 5% drop in the underlying shares of the New York-based business development company. Ares has about five convertible bond issues outstanding. The Ares 5.75% convertibles due 2016, which are due Feb. 2, 2016, traded around par, as did the Ares 5.125% convertibles due 2016 which are due in June 2016. Ares Capital’s 4.75% convertibles due 2018 had also traded this week at a slightly higher 102.75.

Restoration Hardware Holdings Inc.’s two 0% convertibles due in 2019 and 2020 were both trading although shares of the Corte Madera, Calif.-based specialty retailer were little changed.

The newer Restoration Hardware 0% convertible due 2020 was seen at 91.75 bid, 92.75 offered at the end of the session, against a share price of $86.50. The older 0% convertibles due 2019 were seen at 95.125 bid, 95.875 offered versus the same underlying share price of $86.50.

There were also a few SunEdison Inc. convertibles changing hands, and that paper seems to have mostly stabilized.

Against shares that were 3% higher, the SunEdison 2.375% convertibles due 2022 traded at 38, which was up 0.25 point on the day, and the SunEdison 3.375% convertibles due 2025 changed hands at 36, which was up 0.75 point. This dual-tranche issuance priced earlier this year.

Market drivers like lower oil prices and angst ahead of the Federal Open Market Committee meeting next week, were exacerbated on Friday by news that Third Avenue Management LLC is suspending redemptions.

That didn’t seem to ruffle too many people in the convertibles space, however.

“It’s no surprise that there had to be situations out there like that. They are out there. A lot of pain was initially concentrated in oil and gas and has spread to every commodity out there. As it spreads out, it gets more random.”

Third Avenue is a New York-based high-yield fund.

Mentioned in this article:

Ares Capital Corp. NYSE: ARCC

Horizon Pharma plc Nasdaq: HZNP

Navistar International Corp. NYSE: NAV

Restoration Hardware Holdings Inc. NYSE: RH

SunEdison Inc. Nasdaq: SUNE

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