By Rebecca Melvin
New York, March 5 - Convertible bonds were trending higher in line with the underlying stocks on Tuesday as equity markets continued to melt up and the Dow Jones industrial average hit a new all-time high. But the convert space was mostly little changed to just slightly higher on a hedged basis in light trade as volatility contracted, market sources said.
Meanwhile, a flurry of new issues hit the tape, with pricing expected to be sprinkled through the remainder of the week.
Radian Group Inc. saw continued action in its two convertible bond issues since its newer issue priced last week. The new issue has surged to about 120 on an outright basis as shares push ever higher. But on a hedged basis, the new issue was seen little changed on Tuesday versus the ongoing meteoric rise in the shares. The older Radian issue was seen improved on a hedged basis as deltas adjusted on the day.
Redwood Trust Inc.'s 4.625% convertibles, which also debuted last week, were fairly active on Tuesday and were basically flat to up 0.25 point on the day on a hedged basis, a New York-based trader said.
The Redwood convertibles were called 105.5 bid, 106 offered versus a share price of $21.00 at the close. On Monday, there were late-day trades at 105 and 105.5.
Volatility comes in
Overall the market was seen somewhat quiet, and traders said that many of the issues in which they specialize weren't in action.
"Stuff is not really trading," a trader said.
"Convertibles have been better to buy for the last few days, but today even though vol. pulled back quite a bit, many vol. names were not under a lot of pressure relative to the down move in broad-based volatility index, which was down like 4%," the trader said.
"Vol. is for sale again, but a lot of paper didn't crunch down," he said, attributing the static action to the ongoing scarcity factor in the convertibles market.
There is a significant amount of paper maturing this year and "people aren't going to part with something on a moment's notice," the trader said.
Normally, vol. sensitive convertibles would be negatively affected on a dollar-neutral basis with a contraction in volatility, but any movements in that direction on Tuesday weren't pronounced.
"The convert market doesn't always conform, and there is a lot of paper going away this year," the trader said.
Meanwhile, three new deals were launched in the U.S. convertibles space on Tuesday, and one deal priced in Italy while two deals priced in Canada.
M/I Homes Inc. was expected to price $50 million of five-year convertible senior notes in the U.S. market after the market close on Tuesday. IAS Operating Partnership LP, an operating partnership with Invesco Mortgage Capital Inc., launched an offering of $250 million of five-year convertible bonds that was seen pricing after the market close Wednesday. And MGIC Investment Corp. launched an offering of $350 million of seven-year convertibles notes that was seen pricing by Thursday.
In Italy, Prysmian SpA priced €300 million of five-year convertible bonds at par of €100,000 to yield 1.25% with an initial conversion premium of 33.75%. The Regulation S offering priced at the midpoint of 1% to 1.5% coupon talk and 30% to 37.5% premium talk via joint bookrunners BNP Paribas, HSBC Bank plc, J.P. Morgan Securities plc and Mediobanca - Banca di Credito Finanziario SpA.
In Canada, two small issues priced. Exchange Income Corp. priced C$60 million of convertible debentures on a bought-deal basis at par to yield 5.35% with an initial conversion premium of 45%, according to a company news release.
Winnipeg, Man.-based Exchange Income is an open-ended, limited-purpose trust focused on the industrial products and transportation sectors and is using proceeds from the deal to pay down debt and for general corporate purposes.
NorthWest International Healthcare Properties Real Estate Investment Trust priced C$20 million of convertible debentures on a bought-deal basis at par to yield 6.5% with an initial conversion premium of 36%.
The Toronto- based REIT focused on medical office buildings and health care facilities in Canada will use proceeds to fund future acquisitions and for general corporate purposes.
M/I Homes on tap
M/I Homes launched its second $50 million issue of five-year convertibles within seven months. Several sources thought initially that the deal was an add-on, which they thought would have made sense.
Instead the new deal is a five-year convertible talked to yield 2.75% to 3.25% with an initial conversion premium of 35% to 40%.
Like with the first convertible priced in September, M/I Homes is also pricing a concurrent offering of common shares.
There is a $7.5 million greenshoe for the notes.
Citigroup Global Markets Inc., J.P. Morgan Securities LLC and Wells Fargo Securities are the joint bookrunners for the registered notes offering, with Comerica Securities, the Huntington Investment Co., PNC Capital Markets LLC and U.S. Bancorp acting as the co-managers.
The notes will be non-callable for three years and then provisionally callable if shares exceed 130% of the conversion price for at least 20 trading days out of 30. There is takeover protection.
Proceeds will be used to redeem a portion of its outstanding 9.75% series A preferred shares and for general corporate purposes.
Columbus, Ohio-based M/I Homes is a residential home builder.
Invesco to price
Invesco Mortgage's IAS Operating Partnership LP is pricing $250 million of five-year convertible bonds that were seen pricing after the market close Wednesday and were talked to yield 5% to 5.5% with an initial conversion premium of 10% to 15%.
The Rule 144A offering is being sold via joint bookrunners Credit Suisse Securities (USA) Inc., Citigroup and BofA Merrill Lynch and has a $37.5 million over-allotment option.
The notes are non-callable for five years. There is change-of-control and dividend protection and net share settlement.
Proceeds will be used to purchase the company's target assets, subject to the company's investment guidelines as a real estate investment trust, and for other general corporate purposes.
Based in Atlanta, Invesco invests in residential and commercial mortgage-backed securities and mortgage loans.
MGIC to price
MGIC plans to price $350 million of seven-year convertible notes by Thursday. The notes were talked to yield 3.75% to 4.25% with an initial conversion premium of 27.5% to 32.5%.
MGIC also plans to price 135 million shares of common stock.
The registered offerings are being sold via bookrunner Goldman Sachs & Co. The notes have an over-allotment option of up to an additional $50 million of notes, and the shares have a 20.25 million share greenshoe.
The notes are non-callable for four years and then are provisionally callable subject to a 130% price hurdle. There are no puts.
There is change-of-control protection and dividend protection in the form of a conversion rate adjustment for any dividends paid.
Proceeds will be used for general corporate purposes, which may include increasing the company's insurance subsidiary capital and other subsidiaries and improving liquidity by providing funds for debt service.
MGIC is a Milwaukee-based mortgage insurer.
Mentioned in this article:
Exchange Income Corp. Toronto: EIF
Invesco Mortgage Capital Inc. NYSE: IVR
MGIC Investment Corp. NYSE: MTG
M/I Homes Inc. NYSE: MHO
| NorthWest International Healthcare Properties REIT: | Toronto: MOB.UN
|
| Prysmian SpA | Milan: PRY
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| Redwood Trust Inc. | NYSE: RWT
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| Radian Group Inc. | NYSE: RDN
|
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