Toll Brothers trades unchanged on debut; Medicis in another 0.125 point; IG names active

By Rebecca Melvin

New York, Sept. 5 - Toll Brothers Inc.'s newly priced 0.5% exchangeables closed around par to 100.25 after trading in that range most of the session Wednesday.

The new $250 million offering of 20-year exchangeable notes was seen unchanged on the day after pricing late Tuesday at the midpoint of talked terms, a syndicate source said.

Medicis Pharmaceutical Corp.'s convertibles came in another 0.125 point on a dollar-neutral, or hedged, basis in active trade after falling Wednesday on news that Valeant Pharmaceuticals International Inc. has agreed to acquire the Scottsdale, Calif.-based specialty pharmaceuticals maker.

Several shorter-dated, investment-grade names were active including Archer-Daniels-Midland Co., Amgen Inc. and Gilead Sciences Inc., but there wasn't a lot of price movement either way in those issues.

ADM's 0.875% convertibles due 2014 traded at 99.875 and par, and there was no catalyst cited for the trades.

"People are back from vacation and it's more active. There also might be some optimism that the calendar is going to pick up," a New York-based trader said.

To that end, the market saw two new issues launch in the U.S. primary market, including M/I Homes Inc.'s $50 million of five-year convertible senior notes talked to yield 3% to 3.5% with a 35% to 40% initial conversion premium, and NextEra Energy Inc.'s $650 million of three-year mandatory convertible equity units at a discount to their $50 par value in a registered, overnight deal.

As for why the convertible primary calendar might pick up, one market source cited sideways trading in equities for the last couple of weeks.

New Toll Brothers flat

Toll Brothers' newly priced 0.5% convertibles due 2032 closed on their debut Wednesday at 100 bid, 100.25 offered versus a share price of $32.74. The new notes traded wrapped around par all day and the underlying shares were little changed on the day.

"They are just about unchanged," a syndicate source said.

A West Coast-based trader said the Toll Brothers deal was "really, not too exciting."

Another trader said it wasn't a name that market players wanted to hold all that long given the risk, and there was a significant amount of flipping of the issue going on Wednesday.

Toll Brothers Finance Corp., a wholly owned subsidiary of Toll Brothers Inc., priced $250 million of 20-year exchangeable notes to yield 0.5% with an initial exchange premium of 50%, according to a syndicate source.

The Rule 144A deal priced at the midpoint of talk, which was for 0.25% to 0.75% yield and 47.5% to 52.5% premium. There is a $37.5 million over-allotment option.

Deutsche Bank Securities Inc., Citigroup Global Markets Inc., and RBS Securities Inc. were the joint bookrunners, with lead managers BMO Capital Markets Corp. and Goldman Sachs & Co.

The notes are non-callable until Sept. 15, 2017, and there are puts on Dec. 15, 2017, Sept. 15, 2022 and Sept. 15, 2027.

There is contingent interest of 0.5% at a bond price trigger of 120%; and also takeover and dividend protection.

Horsham, Pa.-based Toll Brothers is a residential home builder.

"It looks good in the model, but it's not one that you'd want to own long term," a trader said.

Medicis slips a little more

Medicis' 1.375% convertibles due 2017 traded in another 0.125 point on Wednesday to 108 bid, 108.25 offered, on top of a 3- to 5-point hedged contraction on Tuesday. Outright pricing Wednesday ended at 108 bid, 108.5 offered on Tuesday.

"Outrights are continuing to sell them, as well they should," a trader said, and volume in the name was at the top of the charts.

The thinking was that the $2.6 billion cash deal for the company by Valeant is likely to get done, although consummation of the deal is a bit of a ways out, planned in the first half of 2013.

"It was the biggest name today and came in 10 cents to 15 cents," a New York-based trader said.

Shares of the Scottsdale, Calif.-based specialty pharmaceutical company also slipped11 cents, or 0.25%, to $43.54.

Medicis, which is focused on dermatology and aesthetic treatments, priced the upsized $500 million of convertible bonds in May.

Under terms of the M&A deal, Medicis plans to repurchase or pay the conversion consideration for its $168.9 million of 2.5% contingent convertible senior notes due 2032, $200,000 of 1.5% contingent convertible senior notes due 2033 and $422.2 million of 1.375% convertible senior notes due 2017 using proceeds from a debt issuance by Valeant Pharmaceuticals International Inc., a Mississauga, Ont.-based specialty pharmaceutical company.

New deals in play

M/I Homes, a Columbus, Ohio-based residential home builder, came to market with a small $50 million deal Wednesday on the heels of its larger rival's $250 million offering Tuesday.

M/I plans to price its five-year convertible senior notes to yield 3% to 3.5% with a 35% to 40% initial conversion premium.

The company is also pricing a concurrent offering of 2.2 million of common shares.

There is a $7.5 million greenshoe for the notes, which are being sold via joint bookrunners J.P. Morgan Securities LLC and Citigroup.

The notes will be non-callable for five years with no puts. There is dividend and takeover protection.

Proceeds will be used for general corporate purposes.

In addition, power generation and transmission company NextEra came to market with a new offering of three-year mandatory convertible equity units for $650 million.

The company, based in Juno Beach, Fla., plans to use the proceeds for general corporate purposes and is pricing the paper at a discount to their $50 par value in a registered, overnight deal via bookrunners Barclays and Citigroup.

The units are expected to be priced before the market open on Thursday at $49.00 and to have a distribution rate of 5.889% and a premium of 20%.

Mentioned in this article:

Amgen Inc. Nasdaq: AMGN

Archer-Daniels-Midland Co. NYSE: ADM

Gilead Sciences Inc. Nasdaq: GILD

Medicis Pharmaceutical Corp. NYSE: MRX

NextEra Energy Inc. NYSE: NEE

M/I Homes Inc. NYSE: MHO

Toll Brothers Inc. NYSE: TOL

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