Volcano paper down in line with stock; WebMD higher after earnings; DryShips flat to lower

By Rebecca Melvin

New York, Feb. 22 - The convertible bond market remained fairly trendless on Friday, which marked the end of a holiday shortened week following Presidents Day. A few name-specific trades hit radar screens but generally the universe was tracking with equities, which bounced gently after a two-day slide.

Volcano Corp.'s 1.75% convertibles, of which $460 million priced Dec. 4, dropped outright but were unchanged on a hedged basis after the San Diego-based medical device company issued a mixed earnings report and lower-than-expected 2013 guidance, a New York-based convertibles analyst said. Volcano shares dropped 8%.

WebMD Corp.'s convertibles were a few points higher after the Elmwood Park, N.J.-based provider of online medical information reported better-than-expected revenue and an optimistic 2013 outlook. WebMD shares surged 25%.

DryShips Inc. was also in trade following fairly active trade in recent days and were seen mostly unchanged during the session, but they moved lower late in tandem with the underlying shares.

Meanwhile, Endeavour International Corp.'s 5.5% convertibles, a relatively small $135 million issue priced in 2011, which has been sliding lower since October, slipped further on Friday and was seen last at 53.625, which was off 1.625 points, according to Trace data. Shares fell 10% to $2.72.

"Looks like it's near the end for the END converts," a New York-based trader said, referring to the Houston-based oil and gas development company's stock ticker symbol.

Also among distressed names in trade, A123 Systems Inc.'s 3.75% convertibles due 2016 were quoted in the 71 bid, 72 offered area, up 2 points from where they most recently traded, according to a trader.

But overall, the market was quiet on Friday, traders said.

"We haven't traded a ton," one sellsider said.

The shortened work week ended pretty much unchanged. "Valuations are still pretty robust and stuff doesn't move around," the sellsider said.

The trends that have been ongoing continued. Volatility is low and vol. names have been for sale. Meanwhile credit spreads are trading very tight relative to the past three years.

Volcano seen lower in line

Volcano's 1.75% convertibles due 2017 were seen at 99.5 versus a share price of $22.44 during the trading session. That was down from previous pricing around 103.

Volcano's older 2.875% convertibles due 2015 were not heard in trade.

Volcano shares dropped well over 10% in the early going but pared losses for a $2.04, or 8.3%, loss, to $22.63 in very active trade.

"It looks about unchanged on a delta-neutral basis," an analyst said. The paper trades on a delta in the range of 55% to 65%.

The San Diego, Calif.-based medical device maker makes products for the diagnosis and treatment of vascular and structural heart disease. Late Thursday it reported profit that missed estimates on revenue that was in line.

Fourth-quarter net income was $2.5 million, or 4 cents per share, down from $29.4 million, or 54 cents per share, in the year-earlier period. Revenue was up 10% at $102.5 million. Analysts had been expecting profit of 9 cents a share on revenue of $102.1 million.

Looking ahead, Volcano said it expects a full-year profit of 8 cents to 11 cents per share on $406 million to $412 million in revenue. This is below estimates of 29 cents per share on $423.5 million in revenue.

Volcano followed up its earnings announcement with a second press release essentially updating its 2013 guidance, saying that the first guidance was on a "constant currency basis."

Volcano was downgraded to "neutral" from "conviction buy" at Goldman Sachs, downgraded to "market perform" from "outperform" at William Blair, and downgraded to "hold" from "buy" at Feltl & Co.

WebMD adds after earnings

WebMD's 2.5% convertibles due 2018 traded actively up around 89.5 bid, 90 offered, which was higher by about 2.5 points on the day. They had been 87ish before.

Shares of the Elmwood Park, N.J.-based provider of health information services spiked 25%, closing higher by $4.14, to $20.44.

"They are up small," an analyst said of the WebMD convertibles.

The long-dated bond doesn't trade on much of a delta. "They are just a credit instrument," the analyst said, given that the bonds are out-of-the-money. The paper is yielding about 5%.

WebMD's shorter-dated 2.25% convertibles due 2016 were not heard to have traded, but they were last at 96, according to Trace data.

DryShips trades flat to lower

DryShips' 5% convertibles due 2014 traded during the session around 86.5 bid to 87 offered, which was flat on the day. Late in the session they printed at 85.5.

DryShips stock settled lower by 6 cents, or 3%, at $1.97 in light volume.

The DryShips convertibles have traded pretty actively in recent days, and there didn't appear to be a particular driver of Friday's action, a New York-based analyst said. He noted that the company is expected to report quarterly earnings next Wednesday.

DryShips is a short-dated bond, yielding 14%.

Paul Deckelman contributed to this report

Mentioned in this article:

A123 Systems Inc. Pink sheets: AONEQ

DryShips Inc. Nasdaq: DRYS

Volcano Corp. Nasdaq: VOLC

WebMD Corp. Nasdaq: WBMD

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