Planned Starwood Waypoint ‘okay’ ahead of pricing; Sprit Realty unchanged, Spectranetics adds on hedge

By Rebecca Melvin

New York, June 30 – Starwood Waypoint Residential Trust launched a deal for same-day pricing Monday that was viewed as just “okay” in terms of cheapness from an investor’s perspective, a New York-based trader said.

The Oakland, Calif.-based real estate investment trust’s deal was expected to generate limited interest due to its rather small deal size of $150 million and due to the fact that it is a REIT stock which is new, with low volatility likely.

Starwood Waypoint “looks okay at best,” the trader said.

Among established issues, the longer-dated convertibles of Scottsdale, Ariz.-based REIT Spirit Realty Capital Inc. changed hands at 100.125, which was down about 0.25 point on an outright basis, but unchanged on a dollar-neutral basis, against a stock price that was lower by 8 cents, or 0.7%, at $11.27.

Spirit Realty priced $747.5 million of convertibles in two tranches in May.

Elsewhere Spectranetics Corp.’s 2.625% convertibles traded down nearly 0.5 point on an outright basis, but were higher on a dollar-neutral basis, as swap buyers stepped in on a dip in the underlying shares, a New York-based trader said.

Ctrip.com International Ltd. was also in focus as market players eyed a 5% jump in the underlying shares of the Chinese internet site following a competitor’s upgrade, a trader said.

Otherwise, market action was muted as the session represented the last day of the quarter and month and the beginning of a holiday-shortened week.

“The market was kind of flat; equities were ‘in a little,’ and it was pretty quiet,” a New York-based trader said.

The overall market was described as unchanged, with no selling pressure to speak of. If anything, there was a little bit of pressure on Friday, a trader said.

A second New York-based trader concurred: “Most people were just marking their books.”

Equities ended narrowly mixed on thin volume. Pending home sales for May rose 6.1% compared with April’s reading, which was the best month-over-month gain in four years, but still lower than the same month last year. Sales were 5.2% lower compared with the same-time last year, but recent data show that conditions in the real estate market are improving after a harsh winter doused participation through the first quarter.

The S&P 500 stock index ended lower by less than a point at 1,960.23; the Dow Jones industrial average edged down 25.24 points to 16,826.60; and the Nasdaq composite index added 10.25 points, or 0.2% to 4,408.18.

Starwood Waypoint to price

Starwood Waypoint was expected to price $150 million of five-year convertible senior notes after the market close that were talked to yield 2.5%, to 3%, with an initial conversion premium of 27.5% to 32.5%.

But while market players were looking at it – in the absence of other new deals – it wasn’t expected to generate an overabundance of enthusiasm given that it is a relatively new stock in the REIT space, which is a low vol. sector.

“There’s not too much excitement there,” a trader said.

Using a credit spread of 400 basis points over Libor, the deal looked just okay, a trader said.

The Rule 144A deal has a $22.5 million greenshoe and was being marketed via joint bookrunners, J.P. Morgan Securities LLC, Citigroup Global Markets Inc. and BofA Merrill Lynch.

The notes are non-callable with no puts and standard takeover protection.

Proceeds are expected to be used to acquire additional homes and distressed and non-performing residential mortgage loans, to repurchase common shares and for general business purposes.

Starwood is a REIT that acquires, renovates, leases, maintains and manages single-family homes.

Its shares ended down 11 cents, or 0.4%, at $26.21 on Monday.

Spectranetics adds dollar neutral

Spectranetics’ 2.625% convertibles due 2034 traded at 104.7, which was down 0.45 point on the day, according to trace data. But on a dollar neutral basis, the paper was up about 0.25 point.

Shares of the Colorado Springs, Colo.-based maker of single-use medical devices ended down 32 cents, or 1.4%, at $22.88.

A market source quoted the paper at 103.625 bid, 104.625 offered with the underlying shares down about 2% at $22.73.

“Better swap buyers came in on the dip in the common,” a trader said.

The rest of the market was called “pretty quiet, with market participants positioning into month end.”

Spectranetics priced $230 million of the bonds at the end of May.

Mentioned in this article:

Ctrip.com International Ltd. Nasdaq: CTRP

Spirit Realty Capital Inc. NYSE: SRC

Spectranetics Corp. Nasdaq: SPNC

Starwood Waypoint Residential Trust Nasdaq: SWAY

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