Priceline 1% convertibles add with shares; Energy XXI files for bankruptcy; SunEdison up

By Rebecca Melvin

New York, April 14 – U.S. convertibles were firm in mostly light trading on Thursday as stocks paused following their rally on Tuesday and Wednesday. Priceline Group Inc.’s 1% convertible due 2018 was the single most active issue, with the bonds up about a point to 147 with shares about 1% higher.

The second most active issue was Energy XXI Ltd.’s 3% convertible due 2018, with $12.5 million of bonds having traded by late morning, compared to Priceline’s $45.5 million, according to Trace data.

Energy XXI, the Bermuda-based oil and natural gas company, confirmed that it has filed for Chapter 11 bankruptcy protection from creditors and is implementing a financial restructuring plan.

The market was expecting the filing, and the Energy XXI convertibles were trading little changed at 0.625 to 0.75, according to a New York-based trader. Energy XXI shares were trading under 20 cents per share.

Elsewhere, Jazz Pharmaceuticals Inc., which was active on Wednesday, continued to trade well at steady levels, and Hornbeck Offshore Services Inc.’s convertibles were little changed in active trade, changing hands at around 60, which was the level to which they rose in the previous few sessions. But shares of the Covington, La.-based oilfield services company slipped back 70 cents, or 6.7%, to $9.71 on Thursday, after a 5% rise on Wednesday.

SunEdison Inc.’s convertibles improved along with a rally in the common shares of the Maryland Heights, Mo.-based solar energy company after news that the company’s internal investigation didn’t turn up any fraud but only a lack of internal accounting and cash management controls.

SunEdison disclosed last month that the U.S. Justice Department was investigating the company and that it was providing information to the Securities and Exchange Commission over financial statements to investors regarding cash. In February, the company delayed filing its financial statements over concerns about the accuracy of its information and began the internal investigation.

Merrimack Pharmaceuticals Inc.’s 4.5% convertibles due 2020 traded down to 144 from 148 after the Cambridge, Mass.-based biopharmaceutical company announced an exchange of the bonds for shares. Its stock was also lower but popped back in after-hours action on the heels of an announcement that it has inked a strategic partnership with Leica Biosystems to develop companion diagnostic assays to aid in identification of patients who might best respond to current and future oncology therapies developed by Merrimack.

The initial focus of the partnership will be in the development of a companion diagnostic assay for Merrimack’s seribantumab, or MM-121, an investigational therapy.

The U.S. convertibles primary market remained quiet, but overseas, Steinhoff International Holdings NV priced an upsized €1.1 billion of 7.5-year convertible senior bonds at par to yield 1.25% with an initial conversion premium of 40%.

Pricing of the Steinhoff Regulation S deal came at the cheap end of price talk for a 0.5% to 1.25% coupon and 40% to 45% premium over the reference price based on the prices of its Frankfurt- and Johannesburg-listed shares.

Priceline edges up

Priceline’s 1% convertibles due 2018 rose about a point on Thursday in active trade. The large, liquid issue is a mainstay of the convertibles market. Shares of the online travel site were higher by $18.00, or 1.3%.

Other than Priceline and Energy XXI, there was not much else trading, a New York-based trader said.

Market players anticipate that the convertibles market will remain pretty firm in the absence of new issuance, which would alleviate tight supply that is contributing to higher pricing.

SunEdison gains with shares

SunEdison’s 2% convertibles due 2018 rose to 9 from about 5 or 6. The SunEdison 2.75% convertibles due 2021 rose to 12.25 from about 9, and SunEdison’s 2.375% convertibles due 2022 remained untraded and were last at 6.25.

The SunEdison 6.75% convertibles were indicated up to about 16 from 13.

SunEdison shares rose 21.5 cents, or 58% to $0.5851.

Convertibles players do not hold out hope for much recovery value in the unsecured paper in a potential bankruptcy situation, which is a real possibility for the debt-burdened company. But there might be a claim for the holders who participated in the new 5% convertibles deal that priced in January, a New York-based sellsider said. If they put new money into that, there might be some negotiating power in the event of a bankruptcy, the sellsider said.

On Thursday, some investors were encouraged when SunEdison said that an investigation by the Audit Committee of its board of directors had been completed and no material misstatements in the company’s historical financial statements or evidence of fraud or willful misconduct of management were uncovered. However, there were issues identified regarding the company’s “overly optimistic culture and its tone at the top,” the company’s filing said.

The issues identified were a lack of sufficient controls and processes, overly optimistic assumptions underlying the cash forecasts provided to the board by management, management not responding appropriately to missed forecast targets and a lack of sufficient controls and processes regarding the company’s managing of cash flows, including extensions of accounts payable and the use of cash committed for projects and related disclosures to the board were not comprehensive or made on a timely basis.

Going forward it has been recommended that SunEdison improve its cash forecasting systems and controls and monitor and fully communicate changes in outlook directly to the board.

Mentioned in this article:

Energy XXI Ltd. Nasdaq: EXXI

Jazz Pharmaceuticals Inc. Nasdaq: JAZZ

Hornbeck Offshore Services Inc. NYSE: HOS

Merrimack Pharmaceuticals Inc. Nasdaq: MACK

Priceline Group Inc. Nasdaq: PCLN

Steinhoff International Holdings NV Johannesburg: SNF

SunEdison Inc. Nasdaq: SUNE

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