Convertible bond market muted; New York Mortgage prices; Hercules Capital on tap

By Stephanie N. Rotondo

Seattle, Jan. 18 – Convertible bond trading was subdued in the midweek session.

One trader remarked that there was “slow turnover” in the space, as market players were waiting to see what the incoming Trump Administration would do once in office.

“The market has no certainty,” he said of the president-elect and his policies. Because of that, “the Dow has been treading water” under the 20,000-mark.

“We have been sitting at these prices for a long time now,” he added.

The market did not appear to be all that impressed with New York Mortgage Trust Inc.’s new $120 million of 6.25% convertible senior notes due 2022, a deal that priced ahead of the open at 96% of par with an initial conversion premium of 10%.

Toward the close, a trader said there were “a few prints” in the issue, hitting highs of 96.375.

“It traded right out of the gate this morning at 96, the issue price,” another trader noted.

At mid-morning, a trader said the deal had only traded a handful of times, ranging between 95.875 and 96.375.

As for the underlying equity, it was off 7 cents at $6.30.

One trader remarked that he “honestly did not even model it up as I knew I was not going to be involved.”

“Tough one to own given the really high dividend,” he added.

That jived with another trader’s comments about having difficulties getting accounts interested.

The offering came upsized from $100 million. Pricing was in the mid-range of the 6% to 6.5% coupon talk and at the cheap end of the 10% to 15% conversion premium.

Nomura Securities International Inc. ran the books.

The conversion rate is 142.7144 shares per each $1,000 of notes, equal to $7.01 per share. The rate is subject to adjustment in the event of a fundamental change.

Proceeds will be used to acquire targeted assets and for general working capital purposes, which may include the repayment of debt.

As for the upcoming calendar, Hercules Capital Inc. announced a $150 million offering of convertible senior notes due 2022, with the yield talked at 4.25% to 4.5% and an initial conversion premium of 12.5% to 17.5% (expected ratings: BBB-/BBB+).

Jefferies is running the Rule 144A deal, which is expected to price after the market closes on Thursday.

Proceeds will be used to repurchase or otherwise redeem all of its outstanding 7% notes due 2019, to fund investments in debt and equity securities in accordance with investment objectives and for working capital purposes.

Among deals priced last week, Nabors Industries Inc.’s $575 million of 0.75% exchangeable senior unsecured notes due 2024 remained busy, according to a trader.

The trader said Nabors was the “big volume name” with about $50 million of the convertibles trading just before the close.

He pegged the issue “around 104,” which he said was slightly higher on the day.

The stock fell 6 cents to $17.38.

The deal came Jan. 10 with an initial conversion premium of 40%. The company – a unit of Nabors Industries Ltd. – initially sold $500 million of the notes. A $75 million greenshoe was fully exercised on Jan. 13.

Citigroup Global Markets Inc. and Goldman Sachs & Co. ran the books.

Mentioned in this article:

Hercules Capital Inc. NYSE: HTGC

Nabors Industries Ltd. NYSE: NBR

New York Mortgage Trust Inc. Nasdaq: NYMT

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