From the Securities Lending Trading Desk

biochemists.jpg

Demand has been strong for Celltion Inc, after the Korean pharmaceutical manufacturer’s share price fell last week. Chesapeake Energy Corp remains a strong focus of demand amid a ratings cut and bankruptcy speculation as crude continues to plummet. In Europe, Swedish over the counter drug manufacturer Meda has been in the spotlight after the firm accepted a $10 billion offer from European rival Mylan in a cash and stock deal.

Below please find the February 16 edition of From the Trading Desk, which provides timely commentary about top security earners, revenue drivers and other factors influencing the securities lending market from the BBH Securities Lending Trading Team.

Americas

Chesapeake Energy Corp remains a strong focus of demand amid a ratings cut and bankruptcy speculation as crude continues to plummet.  This week Chesapeake fell to a low of $1.70 as Standard & Poor’s cut their credit rating amid concerns their “debt is unsustainable.”  Though Chesapeake recently completed a debt exchange that lowered their total borrowings by $1.5 billion, S&P went on to further advise that Chesapeake must take additional measures to reduce their borrowing.  Despite cutting the dividend on the common shares back in July and on the preferred stock earlier this year, the company still struggles to reach a breakeven point. Bearish sentiment on Chesapeake and the sector in general remains strong.

Despite a slow start for IPOs in 2016, the first of the year, BeiGene and Editas, have sparked strong borrowing demand. BeiGene, Ltd., a drug company developing immuno-oncology drugs for cancer treatments, began trading on February 2 and marked the first IPO of 2016.  In addition, Editas Medicine, Inc., which provides genetic engineering services, also went public last week. Both stocks rallied in the initial days of trading but have since declined.  Poor market conditions for IPOs in January have resulted in several postponements.

Asia Pacific

Shares of Japanese airbag manufacturer Takata Corp fell sharply in Tokyo trading after costs mounted around the largest consumer recall in US history.  The company is now valued at just 28% of its net asset value as investor concern mounts that the 3 billion yen ($825 million) the company put aside to cover the recall of about 40 million faulty airbag devices will not be enough.  We have seen strong long term lending demand for Takata Corp.

Korean pharmaceutical manufacturer Celltion Inc shares fell last week paring some of the large gains seen in 2016.  Celltrion shares have risen sharply this year after its experimental copy of Johnson & Johnson’s best-selling rheumatoid arthritis treatment Remicade won the backing of US regulatory advisers.  Remicade generated $4.45 billion in US sales last year for J&J. Celltrion shares fell 17% over the course of three days in Korean trading last week.  We continue to see long term lending demand for Celltrion.

Europe

Banca Monte Dei Paschi Di Siena hit its lowest price since shares began trading.  Strong demand has materialized after MSCI announced that they will delete Banca Monte Dei Paschi Di Siena from the index. There are also strong concerns of solvency risks due to the size of the bad debt. It is possible that the firm will need to go through another round of capital raising to increase liquidity ratios.

Swedish over the counter drug manufacturer Meda accepted a $10 billion offer from European rival Mylan in a cash and stock deal.  Meda currently trades at 15% discount to the offer as it stands, however risk arbitrage strategists have been slow to jump on the premium as it seems the deal may be scuppered by Mylan shareholders.  The stock loan desk remains vigilant of the level on deal sentiment.