Midday Commentary: Existing Navistar paper gains in active trade; new Navistar deal looks rich

By Rebecca Melvin

New York, Oct. 7 - Navistar International Corp.'s 3% convertibles due 2014 gained in active trade early Monday after the Lisle, Ill.-based truck, bus and engine maker launched an offering of $200 million of five-year convertible bonds.

The existing Navistar 3% paper was trading at about 103.5 bid, 104.5 offered on an outright basis. On Friday, the Navistar 3% convertibles traded between 102 and 103.5.

The securities were up about a point on a dollar-neutral, or hedged, basis moving on a 20% delta, a Connecticut-based trader said. Navistar shares were trading down in early action by about $1.00, or nearly 3%.

The new Navistar convertibles "don't model great," the trader said.

They were expected to be issued at a discount to par of 99.5 and were talked at a 4% to 4.5% coupon and a 60% to 65% initial conversion premium.

Using a credit spread of 700 basis points over Libor and a 35% vol., the bonds were seen worth 97.5 at the midpoint of talk and worth 99.125 on the cheap end of talk.

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