Cobalt slips from debut high; Clearwire jumps on Sprint offer; Endo Health moves lower

By Rebecca Melvin

New York, Dec. 13 - Trading volume in the convertible bond market slowed Thursday from Wednesday as action in Cobalt International Energy Inc.'s $1.38 billion deal decelerated from its debut and concomitant selling to make room for the new issue in various portfolios tailed off, market players said.

Cobalt's new 2.625% convertibles slipped back 0.5 point to 1 point to about 101.5 on Thursday, following the underlying shares lower, players said.

"It's just going to follow the stock around," a trader said of the Cobalt issue.

There was significant volume trading in Medtronic Inc., a second trader noted, suggesting that that issue, which is a short-dated cash surrogate, may have been moving around to make room for the new paper.

Elsewhere, Clearwire Corp.'s convertibles jumped on an outright basis from par to 109, and up to 110 to 111 as investors began looking at the issue with its hefty 8% coupon from the perspective of it being a stronger credit under Sprint Nextel Corp. ownership.

A Sprint bid for Clearwire materialized after it was first thought to be in the offing two months ago after Japanese mobile carrier Softbank Corp.'s bid to buy a majority stake in Sprint. Sprint offered to buy the other half of Clearwire that it doesn't already own for $2.90 per share, or about $2.1 billion.

Endo Health Solutions Inc.'s convertibles traded down along with lower shares of the Chadds Ford, Pa.-based pharmaceutical company. Endo announced that chief executive David P. Holveck is stepping down by next May and that it would meet guidance for 2012 and 2013 only at the lower end or below its guidance range.

Suntech Power Holdings Co. Ltd.'s 3% convertibles traded a couple points better in the upper 30s on the heels of news that China is boosting subsidies for its solar power sector.

Equities slipped the day after the Federal Open Market Committee announced it would hold interest rates at near zero until unemployment drops below 6.5% or inflation rises to near a ceiling of 2.5%. It also announced more accommodative easing, adding $45 billion of Treasuries per month to its asset purchasing program of $40 billion in mortgage-backed securities per month.

The FOMC said in its release that since it last met in October data suggested that economic activity and employment have continued to expand at a moderate pace, apart from weather-related disruptions. But the unemployment rate remains elevated.

Meanwhile household spending continues to advance and the housing sector has shown further signs of improvement, but growth in business fixed investment has slowed. Inflation has been running below its 2% objective.

"There's not much incrementally that it's going to help," a New York-based convertibles analyst said regarding the Fed's accommodative easing. "It doesn't hurt, but it doesn't really move the needle like it used to."

Cobalt slips from debut high

Cobalt's new 2.625% convertibles due 2019 traded down to 101.25 bid, 101.5 offered during the session and ended with prints right at 101.5. That was down from 102 bid, 102.5 offered by the end of Wednesday.

Cobalt shares ended the session down 41 cents, or 1.6%, to $25.04 in fairly active trade.

Traders said they expected the new paper to move up and down with the stock and that it didn't seem that convertible arbitrage players were fully hedged yet.

"I think people are working into their hedges," a trader said.

The delta was seen somewhere around 50%, versus a theoretical delta of 65%, he said. A second source said the delta was 76%.

The Houston-based oil exploration and development company priced the convertibles in an overnight deal at a 0.75-point discount to par, and the paper traded up Wednesday by about 0.5 point to a point on a dollar-neutral, or hedged, basis.

Clearwire up on Sprint offer

Clearwire's 8.25% convertibles due 2040 traded up to 109 and later at 110 to 111 from around par as investors eyed better credit quality on the 8.25% coupon convertibles.

"People are willing to pay more for that 8% coupon if it's a Sprint credit," a trader said.

The trader said that the parity value is still low.

A second trader said the yield on the paper is about 6% with the bonds becoming callable in 2018.

He also voiced caveats regarding the Sprint deal actually being completed.

"Is there a real offer?" he asked, adding that antitrust concerns and issues over foreign company ownership of U.S. spectrum will have to be addressed.

Shares of the Bellevue, Wash.-based wireless broadband services provider jumped 41 cents, or 15%, to$3.16.

If the deal gets done, the Clearwire convertibles will have been a huge win for convertible players. Last year at this time, the Clearwire bonds were trading in the 50s and 60s.

"They have been all over the place. But if you bought at issue and round tripped it, it would be better performing," a West Coast-based trader said.

Endo down a point

Endo's 1.75% convertibles due 2015 traded at 111, which was down 1.2 points on the day, according to a source.

Endo shares dropped 95 cents, or 3.4%, to $26.65 in active trade.

Endo had forecast adjusted net income of $5.00 to $5.10 per share in 2012, but it now says it will be at or below the low end of that range.

Analysts had forecast income of $5.01 per share in 2012 and net income of $5.21 per share and $3.08 billion in revenue in 2013.

Endo also said it doesn't expect to reach its 2013 guidance of $3 billion to $3.2 billion in revenue or adjusted net income of $5.20 to $5.40 per share.

Endo cut its 2012 forecast in November, citing lower sales of its pain drug Opana, which faces market competition.

Endo's pain-relieving patch Lidoderm is also set to face competition from Sept. 15, 2013 when Watson Pharmaceuticals Inc. launches a generic version.

The company was formerly known as Endo Pharmaceuticals Holdings Inc. and changed its name to Endo Health Solutions Inc. in May 2012.

Mentioned in this article:

Clearwire Corp. Nasdaq: CLWR

Cobalt International Energy Inc. NYSE: CIE

Endo Health Solutions Inc. Nasdaq: ENDP

Medtronic Inc. NYSE: MDT

Suntech Power Holdings Co. Ltd. NYSE: STP

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