New Lennar trades around par; Existing Lennar flat; Chip names active; Jefferies recoups

By Rebecca Melvin

New York, Nov. 23 - Lennar Corp.'s newly priced 3.25% convertible bonds traded Wednesday right around par with some decent flows in the new issue as well as in the two older convertible issues of the Miami-based homebuilder and financial services provider, according to a syndicate source.

Prices on the older Lennar issues were steady on levels post new-issue launch on Monday.

The new convertible came in the nick of time before liquidity dwindled ahead of the Thanksgiving holiday Thursday when U.S. financial markets will be closed.

Also trading on Wednesday ahead of the holiday were a number of semiconductor-related issues, including flash memory maker SanDisk Corp., as well as Micron Technology Inc., Microchip Technology Inc. and Lam Research Corp.

The SanDisk 1% convertible notes due 2013 - or the short-dated SanDisk paper, without much delta - were holding in despite lower shares for the Milpitas, Calif.-based NAND maker.

Micron's 1.5%, or A tranche, convertibles were a little lower with the general market. One trader surmised that these names were in trade because they are sensitive to economic activity.

Elsewhere, activity in Jefferies Inc.'s convertibles was notable in that the paper jumped back up to the 80 mark amid some positive analyst comments as well as takeout rumors, market sources said.

Among more distressed names, MF Global Holdings Ltd. saw its three convertibles issues trade up a bit to 33.5, which is up from the 29 mark to which they fell on Monday on news that its shortfall in customer funds may be more than $1.2 billion.

Also a speculative play, Radian Group Inc.'s 3% bonds changed hands at 43 versus an underlying share price of $2.15. The Radian convertibles had been well above 50 earlier this month.

The convertibles market was described as "very slow" on Wednesday, while the broader markets were focused on and responding to debt troubles in Europe.

European government credit default swaps rose to a record as even Germany, the region's strongest economy, met with failure in enticing buyers for its bonds offered at auction.

In the United States, consumer spending rose less than forecast in October and orders for durable goods sank. Meanwhile, unemployment benefits rose slightly, but more than expected, to 393,000 claims for the week.

Meanwhile the Thomson Reuters/University of Michigan preliminary index of consumer sentiment for November rose to 64.1, less than economists estimated.

The latest batch of data follows on Tuesday's downward revision of U.S. gross domestic product to 2% for the third quarter, down from a previous estimate of 2.5% last month.

New Lennar treads water

Lennar's new 3.25% convertibles due 2021 were seen trading right around par, with the market made at 99.875 bid, 100.125 offered. The trades were not made against a stock price.

The market was a little wider initially at about 99.75 bid, 100.25 offered; but there was buy and sell interest right around par, and the market tightened, a syndicate source said.

The new paper wasn't trading huge, and another source said he hadn't seen it quoted in the Street.

Lennar's existing 2.75% convertibles were moving at 103 to 103.25 versus an underlying share price of $17.09 on Wednesday.

The 2.75% convertibles "came in" very slightly in terms of premium, to 25.8 points on Wednesday from 26.25 points on Tuesday.

The 2% Lennar convertibles were little changed at 98.

From a credit perspective, the older paper should be a little better because the company just raised $300 million, a syndicate source suggested. But those prices, although little changed from Tuesday, were a little lower compared to Monday before the new deal was launched.

The 2.75% convertibles had been 106 versus a share price of $17.65 on Monday, and the 2% convertibles were 98.5.

The new Lennar deal was upsized to $350 million from $300 million and came at the cheap end of talk. The greenshoe was upsized to $50 million from $45 million.

J.P. Morgan Securities LLC and Citigroup Global Markets Inc. were the joint bookrunners, with Deutsche Bank Securities Inc. acting as a co-manager.

The deal had been talked to yield 2.75% to 3.25% with an initial conversion premium of 37.5% to 42.5%.

"We're trading some. There are not huge blocks for sale," the syndicate source said. "We were pretty busy with the new issue, and there were other things moving around."

The new bonds are non-callable for five years and may be put on Nov. 15, 2016. Conversion will be settled in stock only. There is standard takeover and dividend protection.

Proceeds will be used for general corporate purposes, which may include repayment of outstanding debt and potential acquisitions of real estate or financial investments.

The Lennar 2.75% convertibles were an upsized $435 million deal that came with a 40% premium at this time last year. The paper has its first call and put on Dec. 15, 2015, and its conversion price is $22.13.

The Lennar 2% convertibles were priced in the first half of 2010. It was a $276.5 million deal that has its first put in December 2014, with a higher conversion price of $27.64.

Lennar shares were down Wednesday by about 3.5% toward the end of the session at $16.47.

SanDisk holding in

SanDisk's 1% convertibles due 2013 were trading at 98.25 versus an underlying share price of $47.80. And even as shares were dropping Wednesday, at the $46 level, the convertibles were seen 98 bid, 98.5 offered.

"They have a small delta; it's not going to change much," a New York-based trader said.

Micron's 1.5% convertibles, or A tranche, due 2031 changed hands at 87 versus an underlying share price of $6.10, and later it was quoted 85 bid, 86 5 offered.

"Eighty-five was on the bid side. It's just the general market is a little lower today," a trader said of the pricing. "Volume is too small to tell right now, in general."

Lam Research's A tranche convertibles were heard in trade at 94.74 versus an underlying share price of $38.00, a New York-based desk analyst said. And Microchip's 2.125% convertibles traded at 123.5 versus an underlying share price of $33.20.

Jefferies recoups

Jefferies' 3.875% convertibles due 2029 traded up to 80 on Wednesday compared to 77.75 bid, 79.25 offered on Tuesday afternoon and 75.5 on Monday.

Tuesday represented the start of a recovery, but Wednesday's positive analysts' comments and takeout rumors continued the job.

"It's takeout rumors; that's the reason the stock popped," a trader said.

There was nothing concrete to back up those rumors; it was just what traders were hearing, the source said.

Using Tuesday's 77.75 bid, 79.25 offered market price, the Jefferies bond had a yield to put of 8.4% in 5.9 years.

"A conversion premium of 200% suggests little equity upside, but the bond will tend to enjoy tighter credit spread if and when the stock price makes a significant recovery; and miracles often levitate busted convertibles," a New York-based buysider said.

On Wednesday, the Jefferies shares jumped as much as 9% and were last seen up 44 cents, or 4.4%, to $10.50 in heavy volume and contrary to the downdraft in the overall equity market.

Mentioned in this article:

Jefferies Inc. NYSE: JEF

Lam Research Corp. Nasdaq: LRCX

Lennar Corp. NYSE: LEN

MF Global Holdings Ltd. Pink Sheets: MFGLQ

Microchip Technology Inc. Nasdaq: MCHP

Micron Technology Inc. NYSE: MU

Radian Group Inc. NYSE: RDN

SanDisk Corp. Nasdaq: SNDK

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