Convertibles quiet ahead of holiday; Exelixis in line; Softbank/Alibaba mandatories better

By Rebecca Melvin

New York, July 1 – U.S. convertibles were generally firm in light volume on Friday, which was the first trading day of July and the third quarter and the last day before the long holiday weekend in observance of Independence Day.

Exelixis Inc.’s 4.25% convertibles due 2019 traded little changed on swap, or in line with the underlying shares, which were up 2% in the early going. Shares of the South San Francisco, Calif.-based biotechnology company extended gains, closing up 36 cents, or 4.6%, at $8.17. But the bonds came off their highs at around 152.5, and traded late in the day at 148.5.

There is a forced conversion in pricing those bonds, a New York-based trader said regarding the Exelixis convertibles. They are “a month away from a soft call kicking in. 130 threshold.”

In addition, Intercept Pharmaceuticals Inc.’s 3.25% bond, which debuted in the market on Thursday, continued to have a firm bid, a second New York-based trader said.

The new Intercept Pharmaceuticals bonds ended Thursday at 102.75 bid, 103.5 offered against shares at $142.68. Shares of the New York-based biotechnology company closed up on Friday by $3.68, or 2.6%, to $146.68.

Elsewhere, the Softbank Group Corp./Alibaba Group Holding Ltd. mandatory convertibles traded a bit, and were quoted at 102.15 bid, 102.40 offered versus an underlying share price of $79.53 by a New York-based trader.

Alibaba American Depositary Shares closed up 12 cents, or 0.2%, at $79.65.

After initial pricing June 1, the mega $6 billion Softbank/Alibaba issue slipped below par and continued to lag in the following days.

“It’s such a massive issue, it tends to lag. Not a lot of guys can take it down. But a lot of the weak hands cleared out out of the gate,” a New York-based trader said.

Horizon Pharma plc’s convertibles were trading a bit better on Friday. Shares of the Ireland-based pharmaceutical company added 35 cents, or 2%, to $16.82.

Horizon Pharma has recovered ground from selling last week after it announced that it has filed a supplemental New Drug Application for label expansion for its Ravicti (glycerol phenylbutyrate) oral liquid. Horizon is looking to expand the age range for chronic management of urea cycle disorders in adult and pediatric patient from two months to two years and older.

“Horizon is going better,” a trader said.

But Micron Technology Inc.’s convertibles were lower, but not trading actively, along with lower shares after the Boise, Idaho-based semiconductor company reported a quarterly loss, offered weak guidance and announced job cuts amid soft demand for chips for personal computers and struggles to sell products for mobile phones.

Excluding items, earnings beat expectations, but revenue missed. Shares closed down $1.26, or 9%, at $12.50.

Micron’s 3% convertibles due 2043 were last at 74.45, according to Trace data. That was off only 1 point or 2 points from previous levels. Micron 2.375% convertibles, or the C tranche, traded at 138.5 from about 145 as its recent high.

Micron reported a loss for the third quarter ended June 2 of $215 million, or 21 cents per share, which was down from earnings of $491 million, or 42 cents per share, in the year-earlier quarter. Revenue fell 25% to $2.9 billion.

Excluding items, the company posted an adjusted loss of 8 cents a share. Analysts had forecast a loss of 9 cents per share on revenue of $3 billion.

Micron’s new cost reduction plan will reduce its workforce by about 7.5%, representing cuts of about 2,400 positions from its 32,000 employee workforce.

Among Micron’s other convertibles, the 3.125% convertibles due 2032, or D convertibles, were indicated down to 140 from 153; the Micron 1.625% convertibles, or the E convertibles, were seen off at 132 from 141; and the Micron 2.125% convertibles, or the F convertibles, were indicated down to 135.9 from 144.50, according to a pricing source.

Overall, the convertibles market was seen as firm on very low volume.

“I really think that people packed it in two days ago with the end of the quarter; and now with the long holiday weekend, I would be really surprised if anyone did anything,” one trader said.

In the broader markets, U.S. equities were up for a fourth straight day, ending fractionally higher on the day. Stocks have recovered about 90% of their post-Brexit vote losses.

Mentioned in this article:

Alibaba Group Holding Ltd. Nasdaq: ADS: BABA

Exelixis Inc. Nasdaq: EXEL

Horizon Pharma plc Nasdaq: HZNP

Intercept Pharmaceuticals Inc. Nasdaq: INPT

Micron Technology Inc. NYSE: MU

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