Qihoo convertibles slip back; YY trades; health care mostly lower; Jazz, Horizon down

By Rebecca Melvin

New York, May 12 – China’s internet and health care sectors garnered attention in the convertibles space on Thursday, although volumes remained generally light, market sources said.

One exception to the light volume was Qihoo 360 Technology Co. Ltd. Those convertibles slipped amid pretty strong volume as shares of the U.S.-listed Chinese PC and mobile internet security company eased.

The Qihoo stock and bonds have been volatile this week amid speculation regarding whether China’s regulators will allow its long-planned buyout by a consortium of investors including the company’s chief executive officer to be completed. Prices have come off when speculation is high that the deal may be nixed, and prices move back up when it looks more likely that the deal will be allowed to go through.

Under the terms of the Qihoo notes, holders can put the convertibles if there is a fundamental change such as the buyout deal. The Qihoo 1.75% convertibles due 2021 traded down about a point to 94.4 on Thursday.

The 2.25% convertibles of YY Inc., another U.S.-listed Chinese company with prospects for going back to its domestic market, traded up 0.5 point to 96.5, however.

Elsewhere, health care convertibles were under pressure.

“The health care tape has been ugly,” a trader focused on health care convertibles said.

Jazz Pharmaceuticals plc’s 1.875% convertibles due 2021 were down 2 points to 110.6 as shares slipped 3% to $144.70.

Horizon Pharma plc’s 2.5% convertibles due 2022 traded down more than a point to 82.97, according to Trace data.

Anacor Pharmaceuticals Inc.’s 2% bonds traded at 116.25 on Thursday with shares of the Palo Alto, Calif.-based biopharmaceutical company down 6.3% at $61.44. Those bonds have been have been strong since the $287.5 million deal priced about six weeks ago trading up to 120 in the week after pricing. But they had taken a hit to about 112 in early April and had since recovered.

Qihoo eases

Qihoo’s 1.75% convertibles due 2021 traded down about 0.8 point outright to 94.17, according to Trace data.

Qihoo’s 0.5% convertibles due 2020 traded down about 0.5 point to 0.75 point to 96.5.

The Qihoo 2.5% convertibles due 2018 were off 0.3 point at 98.625.

Qihoo shares shed $2.48, or 3.5%, to $67.95 in heavier-than-average volume.

Qiuhoo’s $9.3 billion deal to take the company private by a consortium of investors has been flagged by regulators. The China State Administration of Foreign Exchange is looking at the deal and many others like it. The regulator said this week that only a limited number of the proposed deals will be approved.

According to Bloomberg News, the regulator is evaluating whether converting large sums of yuan into U.S. dollars will put too much pressure on the yuan, leading to depreciation. The agency reportedly told Qihoo’s investors that they could not move all of the acquisition funds in a single batch.

There has been a wave of privatization offers for U.S.-listed Chinese companies, and the government has been trying to control fund outflows.

If the deal is completed, convertible holders can put the bonds at par plus accrued interest to the repurchase date. The company’s definitive merger agreement to be acquired by investors for $9.3 billion in cash, including the redemption of the convertibles, equaling about $1.6 billion, can be called off if it is not completed by September.

The deal had been expected to close in the first half when the current proposal was made public in December.

Health care names lower

Jazz Pharmaceuticals’ bonds traded down to 110.6, which was off 2 points on an outright basis, with shares of the Dublin-based pharmaceutical company lower by $3.53, or 2.4% to $145.23. The bonds had been moving higher, a trader said, suggesting that a snapback was to be expected.

The trader said that trading of health care convertibles had been “very slow” but that health care names were under pressure.

Horizon shares were down 25 cents, or 1.7%, to $13.77 in the early going when the bonds were off a single point at about 83. But shares ended the session lower at $13.57, down 45 cents, or 3.2%.

Horizon announced that it has entered into a settlement and license agreement with Teligent to resolve pending patent litigation involving Pennsaid 2% topical solution.

Anacor’s 2% convertibles due 2023 were seen to have traded at 116.25 during the session, but they were likely lower by the market close versus an underlying share price of $61.42. The shares fell $4.13, or 6.3%.

A month ago, the Anacor 2% convertible bond traded at 112.8 versus a share price of $62.39.

Earlier this week, the company posted a net loss of $0.36 per share on revenue of $17.5 million, which compared to $0.30 per share on $15.26 million in revenue in the year-earlier period. The loss per share met expectations but revenue was shy of estimates.

Distribution and commercialization agreement revenue was up, and research contracts revenue was down.

Cash on hand and investments were a little lower at about $138 million compared to $144.44 million for the same period last year.

During the quarter, the company announced that the U.S. Food and Drug Administration accepted for review its New Drug Application seeking approval for crisaborole topical ointment. The company expects a decision on the application by January 2017.

Mentioned in this article:

Anacor Pharmaceuticals Inc. Nasdaq: ANAC

Horizon Pharma plc Nasdaq: HZNP

Jazz Pharmaceuticals plc Nasdaq: JAZZ

Qihoo 360 Technology Co. Ltd. Nasdaq: QIHU

YY Inc. Nasdaq: YY

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