From the Securities Lending Trading Desk

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A price rally on positive news has increased demand for Acadia Pharmaceuticals. Mitsubishi Motors disclosed that it manipulated fuel economy tests, sending shockwaves through the industry and increasing securities lending demand.  Although SSAB reported an improvement in first quarter results, they still need to raise capital.  The firm announced a rights issue which is seeing strong interest from borrowers.

Below please find the April 26 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

A price rally on positive news has increased demand for Acadia Pharmaceuticals Inc. Acadia’s share price has nearly doubled since falling to a 52-week low of $17.26 amid news it is likely the FDA will approve their lead drug Nuplazid, which is intended to treat psychosis associated with Parkinson’s disease and would be the firm’s first marketed product.  Approval is just the first step, however, and Acadia will need to build awareness of Parkinson’s disease psychosis, secure reimbursement and distribute the drug through a specialty pharmacy in order to be successful. While some investors view Acadia as a potential break out stock, others remain skeptical of the current valuation based on the many unknowns, which is driving bearish sentiment.  Fee levels have been trending higher.

Fee levels spiked for SunEdison, Inc. ahead of the company’s bankruptcy filing on April 21.  SunEdison assumed an unmanageable amount of debt after spending roughly $3.1bln on acquisitions over the past two years.  Despite the huge debt load due to M&A activity, slumping energy prices are getting the better of many companies in the sector. Though the stock will no longer be trading on the NYSE, shares can still move in the OTC market.  SunEdison’s yieldcos, TerraForm Global and TerraForm Power were not included in the filling and only the latter is trading at slightly higher fees as of late.

* A yieldco is a company that is formed to own operating assets that produce a predictable cash flow, primarily through long term contracts. Yieldcos are commonly used in the energy industry, particularly in renewable energy to protect investors against regulatory changes.

Asia Pacific

According to reports in the local media, South Korea’s largest shipbuilders may consolidate as part of a wider government initiative to reform the sector.  Finance Minister Yoo Il Ho was quoted as saying that the government may intervene in order to oversee a restructuring of the shipbuilding industry.  The sector has been under intense pressure in recent months as declining orders, increased debt and the collapse in oil prices have dented earnings for the ‘big three’ shipbuilding firms.  We continue to witness strong securities lending demand for Daewoo Shipbuilding, Hyundai Heavy Industry and Samsung Heavy Industries, which all saw their shares boosted last week as a result of the proposals.

The disclosure by one of Japan’s leading automakers that it manipulated fuel economy tests has once again sent shockwaves through an industry reeling by similar scandals in recent times.  Mitsubishi Motors Corp admitted last week that the fuel efficiency of 625,000 mini cars had been exaggerated by as much as 10% and that it also falsely represented data related to the tire resistance that the cars would encounter when driving.  We have witnessed a gradual increase in securities lending demand for the carmaker, which saw its shares plunge amid concerns that it may need to raise capital or sell non-core assets to fund any potential compensation due to customers and penalties payable to regulatory authorities.

Europe

SSAB reported an improvement in first quarter results, but still needs to raise capital. Shipments have improved and the steel price has rebounded which has helped profitability.  Strong securities lending demand has been seen following the announcement of a rights issue of SEK 5 billion. The rights issue is subject to the approval by an extraordinary general meeting on May 27. The subscription period will run from June 3 to June 17.

German advertising firm, Stroerr dropped 18% last Thursday as Carson Block’s Muddy Waters questions the company’s accounting methods.  Stroerr had surged 60% year to date by close on Wednesday, as short interest increased to 15% from 1% since October, according to Markit.  Block believes that some European firms are attractive shorts due to their indebtedness and lack of investor scrutiny which supports his theme for 2016: shorting “heavily financially engineered companies.”  Fees and utilization are expected to increase in the coming days after Thursday’s sell-off when volume traded 20x the daily average volumes.