BioMarin climbs outright, premium slips; Suntech Power surges; China Medical plunges

By Rebecca Melvin

New York, Feb. 1 - BioMarin Pharmaceutical Inc. jumped in trade on an outright basis Wednesday, along with the underlying shares amid no particular news from the Novato, Calif.-based biopharmaceutical company, market players said. But the premium over parity for the deep- in-the-money BioMarin convertibles actually contracted slightly.

Suntech Power Holdings Co. Ltd.'s 3% convertibles jumped a whopping 6 points, with traders and investors cheered by news of a credibility-boosting strategic agreement that the China-based, U.S.-listed solar company inked with DuPont.

The DuPont-Suntech agreement takes aim at advancing solar technology to help it gain ground against fossil fuels to meet the world's rising energy demands. The agreement is also intended to increase the supply of photovoltaic materials, as well as to increase consumer awareness of solar power.

Moving in the opposite direction, China Medical Technologies Inc.'s 4% convertibles due 2013 dropped off a cliff to about 25 from 50 amid no particular news from the Beijing-based medical device maker.

Recently China Medical failed to cure a missed coupon payment on its 6.25% convertibles, which was left unpaid in December, and traders suggested that Wednesday's move was the result of a holder that wanted out of the position.

Meanwhile, ahead of the market open on Thursday, MannKind Corp. was expected to fix final terms on $161 million of convertibles.

Market turnaround

The January equity rally has left the convertible bond market substantially transformed, driving a focus on more equity sensitive names and away from credit names, which were the focus on the market in the second half of last year.

After the rally that happened, in which the underlying stocks of the convertible bond market jumped almost 9% for the year to date through last Thursday, valuations are now much better and the market is much more equity sensitive, a New York-based analyst said.

The convertibles market has a higher beta than the S&P 500 stock index, so its moves are stronger either side of the trends in equities, he said.

There has been credit tightening, and credit will continue to be important, but not as important, he said.

The speed with which this change has occurred is truly amazing, he said. It's been a complete turnaround in about a month to a month and a half, he said, and it is reminiscent of early 2011.

"The market overall is still cheap on a valuation basis, but it has improved to 0.73% cheap at this point from 1.15% cheap," the analyst said.

Going forward, the convertible market's performance will depend on how well equities do.

The profile of the market is now about 21% busted, or not within shooting distance of its conversion strike, and 43% equity sensitive, with about 34% fitting a typical "balanced" profile, in which the paper has protection from downside risk as well as optionality and reasonable upside potential.

Equity sensitive names have higher dollar pricing and thereby have more weight than busted convertibles.

But now equity sensitive names are nearly double the credit plays and it represents "a complete reversal in a month."

At this point, convertibles players need to change tactics, the analyst said, taking into account that macro risks will remain a major driver, but looking for balanced profiles that provide downside protection, as well as carefully selected busted names for yield, while cherry picking the equity sensitive names.

"We are still advocating a cautious stance going forward," the analyst said.

BioMarin climbs

BioMarin's 1.875% convertible notes due 2017 traded up to 188.25 bid, 188.75 offered versus an underlying share price of $36.27, which was seen up 3.5 points on an outright basis, market sources agreed.

Later the BioMarin 1.875% convertibles were seen higher around 193 versus an underlying share price of $37.34, which represented a 7-point climb on a share price that was $1 higher.

The strength in the bonds and shares didn't appear to be on any particular news, sources said. Although one trader suggested it was a continuation of the consolidation theme in biotechnology and pharmaceuticals, which has been piqued by the last week's hostile bid by Roche Holding for Illumina Inc., a San Diego-based developer of genetic research tools.

BioMarin's 2.5% convertible due 2013, of which there is only $33 million face amount outstanding, weren't seen in trade Wednesday, but they carry an even higher dollar price of 238.37, a New York-based sellside analyst said.

"They are even more in the money," the analyst said of the 2.5% convertibles.

Meanwhile, the actively trading 1.875% convertibles are deep in the money and move with the underlying shares, and on Wednesday's move their premium over parity actually came in a little bit to 5.23% on Wednesday from 5.74% on Tuesday.

"It's going to move with the stock" and the premium might move this way or that in consequence of that, the analyst said.

Shares of the Novato, Calif.-based biopharmaceutical firm, which makes treatments for rare disorders, was up $2.10, or 6%, to $37.74.

One way to play this name is to be long the bond and not short the stock, the analyst said.

Suntech Power jumps 6 points

Suntech Power's 3% convertibles due 2013 traded up handsomely to 72 from about 66, market players said.

Shares of the world's largest solar panel producer, based in China, added 5 cents, or 1.5%, to $3.30.

While there are technical factors at work in the convertible market, including tight supply and strong demand, the 6-point surge in the convertibles on the back of its DuPont agreement was nevertheless impressive.

One trader suggested that the DuPont agreement lends credibility to the solar company.

Perhaps "they are a real company," the trader said, in reference to other companies facing allegations of fraud.

The Dupont-Suntech Power agreement focuses on technology advancements to help solar power make more gains against fossil fuels to satisfy the world's energy demands. The companies are also exploring co-marketing opportunities.

The agreement focuses on technology advancements, supply chain optimization cost reduction initiative and DuPont Tedlar polyvinyl fluoride film supply.

The companies' goal is to achieve faster and broader adoption of solar energy to reduce dependence on fossil fuels. They intend to achieve the goal by further improving technology for solar power and helping reduce its costs and building greater awareness of its benefits to consumers, the companies' release said.

"We're taking our collaboration to the next level with this agreement," Suntech Power senior vice president of global supply chain, Eric Luo, said.

In November 2011, Suntech recognized DuPont with its annual Supplier Excellence Award for providing superior supply and technical service, product innovation and collaboration.

China Medical plummets

China Medical's 4% convertibles due 2013 fell all the way to 25 from 50 on Wednesday, as market onlookers pondered.

China Medical's 6.25% convertibles due 2016 were not heard in trade.

In mid-December, China Medical announced a debt for debt restructuring and missed its coupon payment on its $150 million of 6.25% convertibles. The one-month grace period expired in mid-January.

China Medical is an in vitro diagnostic company.

Standard & Poor's said it viewed the missed coupon payment as a default and lowered its long-term corporate credit rating on China Medical to SN from B+.

At the same time, it lowered its debt rating on the convertibles to D from B+. It also lowered its greater China credit scale rating on the company to DN from cnBB and on the convertible bond to D from cnBB.

The downgrade follows confirmation that China Medical failed to make the interest payment within the 30-day applicable grace period ended Jan. 14.

S&P's noted that the company has made interest and principal payments on other issues. For the second quarter ended Sept. 30, the company had about $206.5 million in cash and cash equivalents and total debt of $412.2 million.

Mentioned in this article:

BioMarin Pharmaceutical Inc. Nasdaq: BMRN

China Medical Technologies Inc. Nasdaq: CMED

MannKind Corp. Nasdaq: MNKD

Suntech Power Holdings Co. Ltd. NYSE: STP

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