By Rebecca Melvin
New York, Nov. 17 – Three new deals launched in the U.S. convertibles market early Monday, including two mandatory deals and a $75 million issue of five-year senior notes. After the market close, a fourth new deal was launched.
The early deals were all fairly small and didn’t create much of a stir among market players.
“They are all small and probably won’t trade very much,” a New York-based trader said.
Two of the three were in the homebuilder sector, but they weren’t seen influencing action in that sector in the secondary market.
“They really didn’t serve as catalysts,” the trader said.
The Woodlands, Texas-based homebuilder LGI Homes Inc. was expected to price $75 million of five-year convertible notes late Monday to yield 3.75% to 4.25% with an initial conversion premium of 30% to 35%.
Louisville, Ky.-based Kindred Healthcare Inc. planned to price $150 million of mandatory convertibles after the market close on Tuesday. That company is a provider of post-acute care services.
Newport Beach, Calif.-based homebuilder William Lyon Homes was expected to price $100 million of mandatory convertibles after the market close on Wednesday to yield 7% to 7.5% with an initial conversion premium 17.5% to 22.5%.
After the market close, Mill Valley, Calif.-based Redwood Trust Inc. launched a deal for $200 million of five-year exchangeable senior notes that were talked to yield 5.25% to 5.75% with an initial conversion premium of 17.5% to 22.5%.
Elsewhere trading was quiet. Some vol. names in smaller lots were hitting and going lower by 0.125 point to 0.25 point, one trader said, but on balance no trends could be discerned amid light volume.
“People are just rebalancing or lightening up of positions,” a trader said.
Ares Capital Corp. saw some trading on Monday, with the whole complex of the business development corporation seen up slightly especially among the longer-dated issues.
The Ares convertibles trade mostly outright and at a wider spread compared to the company’s straight debt by about 40 basis points to 50 bps.
“We look at them as 0% optionality. It is probably unwarranted which is likely why we see them rally back a little bit. There has been interest in a few other BDC names,” a New York-based trader said.
U.S. equities ended narrowly mixed after fluctuating during the session, and Treasuries were lower.
The S&P 500 stock index edged up 1.5 points, or 0.07%, to 2,041.32, the Dow Jones industrial average added 13 points, or 0.07%, to 17,647.75, but the Nasdaq stock market slipped 17.54 points, or 0.4%, to 4,671.00.
U.S. 10-year yields rose 2 bps to 2.34%.
“It’s been one of the quietest days,” a trader aid.
He suggested that news that Japan’s gross domestic product contracted an annualized 1.6 in the three months through September should have probably rattled markets more.
“We walked in and overnight the S&P was down 10 handles at least, and then Europe opened and things rallied back. A negative GDP print in Japan just means more stimulus,” he said.
LGI Homes to price
LGI Homes’ pricing looked interesting with its 3.75% to 4.25% coupon talk and 30% to 35% initial conversion premium, a trader said. But the issue’s small size made it unviable as a convertibles play.
The Rule 144A deal has a $10 million greenshoe and was being priced late Monday.
Joint bookrunners are Deutsche Bank Securities Inc., J.P. Morgan Securities LLC and Credit Suisse Securities (USA) LLC.
The notes are non-callable for life. There is takeover and dividend protection.
A portion of the proceeds will be used to repurchase up to 1 million shares of common stock in privately negotiated transactions, with remaining proceeds for general corporate purposes, which may include capital expenditures, acquisitions, land purchases, working capital, repayment or refinancing of debt and repurchases of additional stock.
Kindred Healthcare to price
Kindred Healthcare plans to price $150 million of mandatory convertibles, or 1.5 million tangible equity units at $100.00 each, in a registered offering that was expected to price after the market close Tuesday, according to market sources.
Concurrently with the offering of mandatories, Kindred plans to price 5 million shares of common stock.
The mandatory offering has a $22.5 million greenshoe and was being sold via joint bookrunning managers Citigroup Global Markets Inc., JPMorgan, Guggenheim Securities and Morgan Stanley & Co. LLC.
Co-managers include BMO Capital Markets, Deutsche Bank Securities and SunTrust Robinson Humphrey Inc.
Proceeds are expected to be used to pay the cash portion for the previously announced Gentiva Health Services merger, to repay Gentiva’s existing debt and to pay related fees and expenses.
If the merger is not completed, proceeds may be used to redeem the purchase contracts and, if required, the mandatory redeemable preferred stock or for general corporate purposes.
Louisville, Ky.-based Kindred is a diversified post-acute health care provider.
William Lyons to price
William plans to price $100 million of mandatory convertibles, or 1 million tangible equity units at $100.00 each, that were talked to yield 7% to 7.5% with an initial conversion premium 17.5% to 22.5%, according to market sources.
The registered deal has a $15 million greenshoe and was being sold via joint bookrunning managers JPMorgan, Citigroup and Credit Suisse Securities (USA) LLC, with co-manager Oppenheimer & Co.
The notes are non-callable until maturity after three years.
The deal is expected to price after the market close on Wednesday.
Proceeds will be used to pay down outstanding debt under the company’s $120 million unsecured loan facility, which was borrowed to pay a portion of the purchase price for the company’s acquisition of Polygon Northwest Homes.
Redwood Trust to price
Redwood Trust subsidiary RWT Holdings Inc. plans to price $200 million of five-year exchangeable senior notes after the market close Tuesday that were talked to yield 5.25% to 5.75% with an initial conversion premium of 17.5% to 22.5%, according to market sources.
The Rule 144A offering has a $30 million greenshoe.
The notes are non-callable with no puts. There is takeover protection.
Proceeds will be used to fund business and investment activity of Redwood and its subsidiaries, which may include funding purchases of residential mortgage loans, funding the origination of commercial loans and acquiring mortgage-backed securities for their investment portfolio, as well as for general corporate purposes.
Redwood Trust is a Mill Valley, Calif.-based real estate investment trust.
Mentioned in this article
Ares Capital Corp. Nasdaq: ARCC
Kindred Healthcare Inc. NYSE: KND
LGI Homes Inc. Nasdaq: LGIH
Redwood Trust Inc. NYSE: RWT
| William Lyons Homes: | NYSE: WLH
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