Morning Commentary: PennyMac’s exchangeable models ‘fair’ at 425 bps spread, 15% vol.

By Rebecca Melvin

New York, Nov. 4 – PennyMac Corp.’s $200 million of five-year exchangeable senior notes looked to be fair value, using a credit spread of 425 basis points over Libor and 15% vol. at the midpoint of price talk, according to a New York-based trader on Monday.

The Westlake Village, Calif.-based real estate investment trust announced ahead of the market open that it is planning to price $200 million of the exchangeables to yield 4.75% to 5.25% with an initial exchange premium of 10% to 15%, according to a second market source.

The company is a subsidiary of PennyMac Mortgage Investment Trust, which is guarantor of the notes.

J.P. Morgan Securities LLC and Morgan Stanley & Co. LLC are joint bookrunners of the Rule 144A offering, which has a $30 million greenshoe.

The proceeds of the notes, which are non-callable, are going to be used for general corporate purposes, including funding the investment activity of PennyMac and its subsidiaries, which may include investments in credit risk transfer securities, mortgage servicing rights, mortgage-backed securities and new products such as home equity lines of credit or prime, non-qualified mortgage loans, as well as the repayment of debt and working capital.

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