By Rebecca Melvin
New York, Nov. 18 – LGI Homes Inc.’s newly priced 4.25% convertibles traded up out of the gate Tuesday after the Woodlands, Texas-based homebuilder priced $75 million of the five-year senior notes at the cheap end of talked terms.
The new LGI convertible was seen at 102 versus Monday’s closing share price, and it traded a good amount despite its small deal size.
Also in the primary market, William Lyon Homes priced $100 million of 6.5% tangible equity units. The mandatory convertibles for the Newport Beach, Calif.-based homebuilder priced through the rich end of distribution talk and at the cheap end of premium talk.
William Lyon shares were weak Tuesday after dropping sharply on Monday. But the shares ended up by 2 cents.
Another two deals were in the market Tuesday for pricing after the close.
Price talk for the planned Redwood Trust Inc. $200 million of exchangeables was revised, and those notes were seen coming at a discount to par of 99.5, according to a market source. The new talk was for a coupon of 5.625% and with an initial conversion premium of 15%, compared to initial talk of a 5.25% to 5.75% coupon and a 17.5% to 22.5% premium.
Before the revisions, the five-year senior notes were still a little cheap, but as one New York-based trader said, “I thought this would be a little cheaper given where the old ones are.”
Redwood Trust, a Mill Valley, Calif.-based real estate investment trust, has an existing 4.625% convertible that was not pulled into active trade on the new deal, but at least one trade was seen and pricing was down by about a point or so at 98 to 99.
Also pricing after the market close is Kindred Healthcare Inc.’s planned $150 million of mandatory convertibles. That company is a provider of post-acute care services based in Louisville, Ky.
After the market close, Cloud Peak Energy Inc. launched an offering of $100 million of mandatory convertible preferred stock talked to yield 6.75% to 7.25% with an initial conversion premium of 22.5% to 27.5%. The deal was seen pricing late Wednesday.
Back in established issues, SunEdison Inc.’s convertibles saw some outright sellers as shares surged on news that the St. Peters, Mo.-based solar company is buying Boston-based First Wind for $2.4 billion.
New LGI Homes adds
LGI Homes’ newly priced 4.25% convertibles traded up about 2 points out of the gate versus Monday’s closing share price, which was $16.55.
The new convertibles traded actively around the 102 mark.
Shares were fluctuating but closed down 54 cents, or 3.3%, at $16.01.
The notes priced at the cheap end of talk, which was for a 3.75% to 4.25% coupon and a 30% to 35% initial conversion premium.
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.
Redwood pricing revised
Pricing for the planned Redwood deal was fixed toward the cheap end of talked terms for a coupon of 5.625% and a 15% initial conversion premium, compared to initial talk of a 5.25% to 5.75% coupon and a 17.5% and 22.5% premium.
The notes were also seen coming at a 99.5% of par.
Based on initial talk the deal had already looked a little cheap.
Using a credit spread of 500 basis points over Libor and 17% vol., the exchangeables looked to be worth 102.5 at the midpoint of talked terms, a Connecticut-based trader said.
A second source said that 17% vol. was probably too high, and using a credit spread of 475 bps over Libor and 14% vol., the deal looked worth 101, he said.
On the back of the deal the older Redwood Trust convertibles looked to be a little lower, but they weren’t really trading.
“There were some Street markets that looked a little lower outright,” a trader said. But the name doesn’t really trade, he added.
The REIT space has been out of favor with investors since about June.
Recent new deals from fellow REITs like Starwood Property Trust Inc. and Colony Financial Inc. received a lukewarm reception.
“People weren’t really scrambling for those,” a trader said.
Proceeds of the new issue 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.
Sellers in SunEdison
SunEdison saw outright sellers on Tuesday, which kept a lid on pricing, which was higher outright with a huge surge in the underlying shares.
SunEdison shares ended up $4.87, or 29%, to $21.48.
“The bonds hovered,” a New York-based trader said, “Generally outrights are selling into equity strength.”
The SunEdison 2.75% convertibles due 2021 was seen at 159.25 versus a share price of $21.00. They also traded at 158.7, which was up nearly 25 points, according to Trace data.
SunEdison’s 2% convertibles due 2018 were quoted at 156.50 versus a share price of $21.00. They also traded at 151.
SunEdison’s 0.25% convertibles due 2020 traded at 101.5, which was up 8.75 points.
“SunEdison is lower on the big stock move as guys take profit,” a New York-based trader said.
The spike in securities was sparked by news that the solar company has inked an agreement to purchase a large wind energy producer.
Cloud Peak to price
Cloud Peak, a Gillete, Wyo.-based coal producer, plans to sell $100 million of mandatory convertible preferreds that are talked to yield 6.75% to 7.25% with an initial conversion premium of 22.5% to 27.5%.
The deal has a $15 million greenshoe and was being sold via joint bookrunners JPMorgan, Credit Suisse Securities, Credit Agricole Securities (USA) Inc., Deutsche Bank Securities, Goldman Sachs & Co., RBC Capital Markets LLC and Wells Fargo Securities LLC.
Co-managers are BB&T Capital Markets, Comerica, PNC Capital Markets LLC and Stifel, Nicolaus & Co. Inc.
Proceeds will be used to fund a partial redemption of the company’s outstanding 8.5% senior notes due 2019 issued in 2009 by Cloud Peak Energy Resources LLC and Cloud Peak Energy Finance Corp.
Mentioned in this article:
Cloud Peak Energy Inc. NYSE: CLD
Kindred Healthcare Inc. NYSE: KND
LGI Homes Inc. Nasdaq: LGIH
Redwood Trust Inc. NYSE: RWT
SunEdison Inc. Nasdaq: SUNE
| William Lyon Homes: | NYSE: WLH
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