Yellen comments eyed; Herbalife trades off on news Icahn looking to sell; Workday weakens

By Stephanie N. Rotondo

Seattle, Aug. 26 – The convertible bond markets finished mixed on Friday as Janet Yellen indicated that the time was ripe for another interest rate increase.

The Federal Reserve chairman was speaking from a three-day meeting from Jackson Hole, Wyo. In a prepared statement, Yellen said that employment and “price stability” were nearing the levels the Fed wanted to see, thus making a case for another rate increase this year.

“In light of the continued solid performance of the labor market and our outlook for economic activity and inflation, I believe the case for an increase in the Federal Funds rate has strengthened in recent months,” Yellen said.

However, she did not indicate when such an increase might occur. The Fed has policy meetings scheduled in September, November and December.

As for convertible debt dealings, volume remained thin.

“It’s been horrible all week,” a trader noted.

Herbalife Ltd. was bucking the day’s upward trend, as it was reported that Carl Icahn – one of the nutritional supplement company’s biggest defenders – has been looking to sell his then 18% stake in the company.

However, after the market close, Icahn issued statement in which he denied he had attempted to sell his stake in Herbalife. He instead announced he had purchased 2.3 million more shares of the company.

The 2% convertible notes due 2019 came in about a point to straddle 98, according to a market source. The equity underlying the bonds traded down $1.43, or 2.31%, to $60.50.

According to news reports, Icahn even considered selling his stake in Herbalife to Bill Ackman. The two billionaire investors have been fighting over Herbalife since 2012, with Ackman deeming the company a pyramid scheme and Icahn coming to its defense. Again, Icahn denied he had approached Ackman.

In an interview with CNBC, Ackman said that Icahn wants to divest his holdings because “he knows it’s toast.”

Meanwhile, recent earnings news was driving Workday Inc. and Brocade Communications Systems Inc. – both to the down side.

Workday trades off

Workday’s 0.75% convertible notes due 2018 came in about a point on the day, as its equity declined nearly 3% for the day.

A trader said the bonds were trading with a 118 handle versus a stock price of $85.33 ahead of the open. By mid-afternoon, the paper had traded down to 117 against a stock price of $84.50.

The stock ultimately closed at $83.08, off $2.25, or 2.64%.

On Thursday, the stock had jumped about 6% on the back of second-quarter results that beat expectations.

But a trader said the weakness in the equity – and then subsequently the debt – came just minutes after TheStreet.com posted a story that deemed Workday – along with HP – a “toxic” tech stock.

“Workday may be a fabulous fast-moving business entity, but profits always make a difference,” wrote Chiradeep BasuMallick in the article. “In this case, there are none.”

BasuMallick noted that while there was “solid traction in revenues” – $377.7 million for the recent quarter, which included a 37% gain in revenue from subscriptions – net loss widened to 4 cents a share from 2 cents the year before.

Workday is a Pleasanton, Calif.-based on-demand financial management and human capital management software vendor.

Brocade comes in

Brocade Communications’ 1.375% convertible notes due 2020 were also moving on the heels of numbers that beat expectations, but failed to appease investors.

A trader said the debt was at 98 versus a stock price of $9.26 at mid-afternoon. The equity finished the day at $9.24, off $1.22, or 11.66%.

Late Thursday, the company posted its fiscal third-quarter results, showing a profit of 21 cents per share on revenue of $590.7 million.

Analysts polled by Thomson Reuters had predicted EPS of 17 cents on revenue of $576.3 million.

Year over year, EPS was lower than the 27 cents reported then, but revenue was improved by nearly $40 million.

Mentioned in this article:

Brocade Communications Systems Inc. Nasdaq: BRCD

Herbalife Ltd. NYSE: HLF

Workday Inc. NYSE: WDAY

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