NextEra adds in line with shares; Navistar flat to better as stock rallies; M/I Homes adds

By Rebecca Melvin

New York, Sept. 6 - NextEra Energy Inc.'s newly priced $650 million of convertible equity units traded up slightly to in line in their first-day trading Thursday after the utility's paper came at a discount to par in an overnight deal and cheaper than initially expected, market sources said.

Offered at 48.50, the new NextEra was seen at 49.25 bid, 49.50 offered versus the closing stock price of $67.41. The older NextEra, which was a similarly structured convertible priced in April, was also seen still under their $50 par, trading at 49.50 bid, 49.75 offered versus the common's close.

A much smaller new deal that also debuted in Thursday's market was M/I Homes Inc.'s $50 million of 3.25% convertibles. That paper came at the midpoint of coupon price talk, and at the cheap end of 35% to 40% premium talk, and moved up about in line to 104.75 bid, 105.25 offered versus the $18.28 closing common share price.

Back in the secondary market, Navistar International Corp.'s convertibles were better outright and flat to somewhat better on a dollar-neutral, or hedged, basis after the Lisle, Ill.-based truck and engine maker reported quarterly results including layoffs that sent shares zooming higher by 17%.

The troubled company is trying to preserve cash and raise cash and predicts a turnaround can take place in 12 months to 18 months.

Otherwise, investment-grade, shorter dated paper continued to be the flavor of the week, and there wasn't much price movement there, sources said.

"I'd like to see more breadth to this market, but the focus right now is on large-cap, investment-grade stuff," a New York-based trader said.

New NextEra moves in line

NextEra's newly priced three-year mandatory units moved up off the discounted offer price amid strength in the underlying common stock.

The units traded last at about 49.25 bid, 49.50 offered versus the $67.41 closing stock price for the Juno Beach, Fla.-based utility.

The convertibles were up from the 48.50 discounted offer price, and the shares were up 26 cents, or 0.4%, on the day.

The issue opened out of the chute at 48.125 bid, 48.5 offered versus a share price of $66.00, a trader said.

"They opened as expected and there was a little slippage initially, but they were helped by good data and a big rally in credit and equity, which helped the stock," the trader said.

At 49.375, the new paper looked to have moved up "in line on a 0.5 point per," the trader said.

A 0.5 point per is equivalent to 80% times the high strike conversion ratio, and it's a method of indicating price movement in this type of convertible compared to the common.

The older NextEra mandatory units which priced in April were seen closing at 49.50 bid, 49.75 offered versus the $67.41 closing share price.

As for which NextEra unit looked better, one trader said that based on modeling the new paper, the older one looked a little better given that it had cheapened since issue and has strikes that are a little lower and premium that is a little lower.

"But I don't love either one," the trader said, echoing the sentiment of others in the market.

"The stock market bailed these guys out this time," compared to last time when the stock sank 5% after issue, the trader said.

The new deal was registered, overnight and "bought by" bookrunners Goldman Sachs & Co., Barclays and Citigroup Global Markets Inc. The older one was also registered, overnight and bought.

The new units priced at a discounted $48.50 per unit, compared to the $50.00 stated amount, and cheaper than the $49.00 that was talked.

The distribution rate on the units is 5.889%, and the premium is 20%.

Each stock purchase contract will require the holder to purchase NextEra Energy common stock for cash, based on a per share price range of $67.15 to $80.58.

Proceeds are for general corporate purposes.

The equity units consist of a contract to purchase NextEra Energy common stock and a 5% beneficial ownership interest in $1,000 principal amount of NextEra Energy Capital Holdings Inc. debentures due Sept. 1, 2017.

M/I Homes rises

M/I Homes' newly priced 3.25% convertibles weren't heard much in trade as the deal was a small, $50 million deal. But one source quoted it shortly after the market close at 104.75 bid, 105.25 offered versus a $18.28 closing share price for the Columbus, Ohio-based homebuilder. The shares were higher by 75 cents, or 4.25%.

"It moved up about in line," a trader said.

The paper modeled at 102 fair value, using a credit spread of 900 basis points over Libor, he said.

Navistar slightly higher

Navistar's 3% convertibles due 2014 printed Thursday at 91.5, which was up 2.5 points outright, and at 90.8, which was up 1.8 points outright, according to Trace data.

The paper had weakened some in recent days and had been lower in the 89 context.

The hedged movement was particularly small given the huge bounce in the underlying shares, which closed higher by $3.56, or 17.4%, to $23.97.

"They are about 0.03 point better, depending on marks," an East Coast-based buysider said.

Another source said the notes were up 0.3 point using a 30% delta.

Navistar is trying to right itself after a failed generation of diesel engines has taken a toll on the company's balance sheet, customer relationships and long-time suppliers. To that end, it outlined a cost-cutting plan with its third-quarter earnings report Thursday.

Third-quarter earnings were lower. It earned $84 million, or $1.22 per share, for the three months ended July 31, which compared to $1.4 billion, or $18.24 per share, a year earlier.

The most-recent quarter included an income-tax benefit of $196 million. It also reflected $16 million in costs related to engineering integration and $10 million in nonconformance penalties. The year-earlier period included a $1.46 billion income-tax benefit.

Third-quarter revenue dropped 6% from a year earlier to $3.32 billion, from $3.54 billion.

As part of cost-cutting efforts, the company is buying out about 500 employees and anticipates reducing the workforce by another 200 workers.

The layoffs will save about half of the company's goal of $150 million to $175 million in savings.

The company didn't provide earnings or revenue guidance for the fourth quarter.

Mentioned in this article:

Navistar International Corp. NYSE: NAV

NextEra Energy Inc. NYSE: NEE

M/I Homes Inc. NYSE: MHO

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