Salix convertibles add on sweetened Valeant deal; Amarin extends gains; Actavis in action

By Rebecca Melvin

New York, March 16 – Salix Pharmaceuticals Ltd.’s convertibles traded higher on Monday on the back of a sweetened takeout deal from Valeant Pharmaceuticals International Inc.

Hedged buyers lifted offers from outright sellers, pocketing profits, traders said of the Salix convertibles.

Amarin Corp. plc’s convertibles continued to push higher, extending strong gains notched last week as investors cheer the Dublin-based specialty drugmaker’s recent financing intended to fund upcoming trials.

Actavis plc’s 5.5% convertibles were up on Monday as the mandatory convertible preferred stock remains in favor since the mega $4.6 billion deal priced last month.

The Actavis 5.5% convertibles were quoted at 104.75 bid, 105.125 offered, with the underlying shares of the global specialty pharmaceutical company with headquarters in Parsippany, N.J., rising about 2% to $305.00.

Energy convertibles were weak but didn’t trade over-actively despite another leg lower for crude oil prices.

West Texas intermediate crude oil for April delivery traded down 2.25% to $43.83 on Monday. The contract has moved down for the last four sessions for a 15% cumulative move lower.

But there was not an overabundance of selling on Monday in U.S. energy convertibles or in the U.S. convertibles market overall, sources said.

Energy XXI (Bermuda) Ltd.’s 3% convertibles fell to 32 or 33 from 35.5 while the underlying shares of the Houston-based energy exploration and production company reversed early losses on Monday to end up 8 cents, or 2.6%, to $3.13.

Peabody Energy Corp.’s 4.75% convertibles slipped to 37.25 from 40, while shares ended up a penny at $5.48.

SanDisk Corp. and Tesla Motors Inc. were also fairly active, although they looked little changed on a dollar-neutral basis.

The SanDisk 0.5% convertibles due 2020 traded at 110.15, which was up 0.2 point. SanDisk shares turned lower by late morning, after a few-cents gain for much of the session.

Tesla’s 1.25% convertibles due 2021 traded at 84.5, which was up 1.7 points, with Tesla shares ending up 3.75% at almost $196.00.

Equities rallied on Monday, ending the day near their highs ahead of the Federal Reserve’s two-day policy meeting set to begin Tuesday.

Investors are watching for indications of when the Fed will begin to raise interest rates from near zero, where they have stood for more than six years.

Salix adds on sweetened deal

The Salix 1.5% convertibles due 2019 traded up about 7 points on an outright basis to 265, according to Trace data. Salix shares were up 2% to $172.75.

The new Valeant takeout price is $173.00 per share, or about $11.1 billion, which is up from Valeant’s original $158.00 per share offer. Meanwhile, Endo International plc withdrew its rival cash and stock offer, valued at $172.56 a share, after being eclipsed by Valeant’s new bid.

A convertibles trader had predicted on Friday that Valeant was going to increase its bid. “They are not going to let this slip. Endo still has to do due diligence to close this deal and it’s cash and stock. Valeant is paying cash and can close in a couple of weeks,” the trader said.

Salix was the most actively traded convertible bond in the early going on Monday, according to Trace data.

“There were a lot of outright sellers. They are taking profits, and hedged buyers,” a trader said.

Hedged players are buying the security to see if they can make a profit on the make-whole feature of the bonds’ indenture.

A second trader said that their firms’ trades in Salix have been hedged. The trades were not of huge size, but they were buyers, the trader said.

Amarin ‘moves a lot’

Amarin’s 3.5% exchangeables due 2032 surged again on Monday, although the paper wasn’t trading actively.

The exchangeables were quoted at 136.5 versus an underlying share price of $3.35. On Friday, the paper was in the mid teens, a trader said.

“Amarin moved up a lot,” a second trader said. And they expanded on a hedged basis.

There are two Amarin 3.5% exchangeables due 2032. There is about $118 million outstanding of the issue that was trading, a source said.

On March 12, the Amarin exchangeables were below 90 versus an underlying share price of $1.94. One trader said they had been marked at 87.625 bid, 88.625 offered.

The stock has started to move in expectation of another trial that the company is likely to run using the financing that it procured last week.

The company raised more than $52 million in a restricted stock private placement. On Thursday, the company’s shares were raised to “buy” from “neutral” by HC Wainwright, and the price target was raised $10.00 from $2.50.

“The stock is up a ton, and the bonds expanded,” a market source said.

Mentioned in this article:

Actavis plc NYSE: ACT

Amarin Corp plc Nasdaq: AMRN

Energy XXI (Bermuda) Ltd. Nasdaq: EXXI

Peabody Energy Corp. NYSE: BTU

Salix Pharmaceuticals Ltd. Nasdaq: SLXP

SanDisk Corp. Nasdaq: SNDK

Tesla Motors Inc. Nasdaq: TSLA

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