This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Cramer's Action Alerts PLUS - See his portfolio and get alerts BEFORE every trade. Learn more NOW!

The Hedge Fund Report: Convertible Overhang

Hedge funds that practice convertible arbitrage continue to bleed assets and remain one of the poorest performers of any category this year. But here's a secret, according to a hedge fund manager: Convertible issuance is back.

Convertible financings have rebounded because interest rates are up and it costs less for companies to issue these stock-and-bond hybrids than traditional corporate paper. Also, while companies may be sitting on a lot of cash, they've still found uses for borrowed money in the area of share buybacks, acquisitions, and to fund research and development.

With that in mind, says the manager, investors should be wary of certain names that have shown a propensity for convertible offerings in the past. He mentioned First Data (FDC), Radian (RDN - Get Report) and Weatherford International (WFT - Get Report). If a company sets a convertible sale, arbitragers are sure to short the underlying stock.

Tough Legacy

Life is full of surprises when you're Biovail (BVF). Uncertainty around the Ontario pharmaceutical firm has created a feeding ground for hedge funds that see the stock as a pure "event" play. Biovail got a boost earlier this month when it announced a marketing partnership with Johnson & Johnson (JNJ - Get Report) for the sale of Tramadol ER, a pain reliever.

"The partnering is fantastic news. They found the best partner," says David Maris, a Banc of America Securities analyst who is neutral on the stock. New York-based Deerfield Management, a specialized life science hedge fund, is long the stock and held 3.77 million shares, according to its most recent 13H filing.

On the downside, Biovail, which manufactures Wellbutrin XL, is facing generic competition. OrbiMed Advisors, a hedge fund specializing in life science products, sold its 2.1 million-share position based on the generic risk, according to a source familiar with the sale. York Capital Management also sold almost a million shares, according to regulatory filings. Both trades looked prescient Thursday when Biovail tanked 13% to $22.30 after Anchen Pharmaceuticals obtained tentative approval for its generic version of Wellbutrin XL.

1 of 3

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Try it NOW
Only $9.95
Try it NOW
14-Days Free
Try it NOW

Check Out Our Best Services for Investors

Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
Try it NOW
Try it NOW
Try it NOW
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
SYM TRADE IT LAST %CHG
JPM $61.80 -0.27%
JNJ $101.97 -0.36%
RDN $16.31 0.49%
WFT $12.53 -2.70%
FB $80.18 0.73%

Markets

DOW 18,117.77 -85.60 -0.47%
S&P 500 2,096.62 -11.16 -0.53%
NASDAQ 4,962.8710 -17.03 -0.34%

Partners Compare Online Brokers

Free Reports

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs