By Rebecca Melvin
New York, March 25 - Convertibles players were sizing up HomeAway Inc.'s $350 million five-year bullet convertibles on Tuesday ahead of final pricing seen after the market close.
The HomeAway deal was higher in the gray market at 101.375 bid, 102 offered at the close, with the underlying shares down 2.25%, according to a Connecticut-based trader.
After the market close, Solazyme Inc. launched an offering of $100 million of five-year convertible senior subordinated notes and 5 million shares of common stock in registered offerings.
Back in established issues, trading was mostly quiet, a New York-based trader said. There was a small amount of outright selling to make room for the new deal, one trader said. In addition, some of the recent new issues traded such as National Health Investors Inc., which traded on an outright basis and little changed from previous levels.
Meanwhile, homebuilders were getting a look after mixed new-home sales and single-family home price data.
Lennar Corp.'s convertibles were weaker by about 0.25 point on a dollar-neutral, or hedged, basis, a New York-based trader said, with shares that were slightly off. KB Home shares also dipped, but the convertibles were not heard in trade by traders queried, although there was a Trace data print of the KB Home 13.75% convertibles at 103. Shares of the Los Angeles-based homebuilder were down 22 cents, or 1.3%, at $16.76.
Lennar's 2.75% convertibles due 2020 and Lennar's 3.25% convertibles due 2021 were both seen to have contracted 0.25 point, at 180 and 176, respectively. Shares of the Miami-based homebuilder ended down 6 cents at $39.12.
Sales of new single-family homes in February dipped 3.3% to a seasonally adjusted annual rate of 440,000 units, a five-month low, according to the Commerce Department. The rate was hurt by harsh weather in many markets as well as mortgage rates, which have risen since the summer.
But home prices in 20 U.S. markets showed a seasonally adjusted 0.8% gain in January from the prior month, according to the S&P/Case-Shiller composite index. But on a year-over-year basis, home prices were seen rising 13.24% for January, which was down slightly from December and slightly below expectations for a 13.35% rise.
Elsewhere, CommonWealth REIT's convertible preferred shares traded up following news that the Newton, Mass.-based office and industrial real estate investment trust has voted to oust its entire board of directors.
"The investors wanted the board off because they didn't like what they were doing," a trader said, though in a statement released Tuesday, the company said the board's removal was being done "without cause."
Overall, "it was not an exciting day," a New York-based trader said. "There was some small outright selling in anticipation of the deal, and a couple of the new issues traded. But everyone is wondering what is going to happen in the next couple of weeks."
Equities ended higher. The Dow Jones industrial average added 91.19 points, or 0.6%, to 16,367.88; the S&P 500 stock index tacked on 8.18 points, or 0.4%, to 1,865.62, and the Nasdaq stock market gained 7.88 points, or 0.2%, to 4,234.27.
HomeAway higher in gray
HomeAway's planned $350 million of five-year convertibles traded higher in the gray market at 101.25 bid, 102.75 offered in the early going with the underlying shares down about 1%. And they ended at about 101.375 bid, 102 offered with the underlying shares down 2.25%, according to a Connecticut-based trader.
A second trader said the day's focus was mainly on HomeAway, which he said was in interesting company with a deal size that was large enough that "everyone will want to pay attention to it."
The home/vacation rental site doesn't have many competitors and is making money. And the convertible represents the only way to play the space, the trader said.
The gray market was ahead of the valuation of at least one trader, who said that the deal is just slightly cheap, or worth 100.125 at the midpoint of talk, using a credit spread of 350 basis points over Libor, 35% vol. and 50 bps of stock borrow cost.
The notes were talked at a 0% to 0.5% coupon and a 27.5% to 32.5% initial conversion premium, according to a syndicate source.
The Austin, Texas-based company plans to use the proceeds for general corporate purposes.
The Rule 144A deal has a $52.5 million over-allotment option and was being priced via bookrunners J.P. Morgan Securities LLC and Deutsche Bank Securities Inc.
The notes are non-callable for life. The deal was launched late Monday and as previously reported, they will be settled in cash, shares or a combination of cash and stock, and it is coming with a call spread, or convertible note hedge and warrant transactions, aimed at reducing potential dilution to the company's common stock upon conversion of notes and/or offset cash payments.
Solazyme to price
San Francisco-based Solazyme planned to price $100 million of five-year convertible senior subordinated notes in a registered offering being sold via bookrunner Goldman Sachs & Co.
The company, which uses plant-based sugars to produce oils for the chemicals and fuels industries, as well as for the nutrition, skin and personal care markets, is also selling 5 million shares of common stock.
Price talk and timing wasn't immediately available, sources said.
The convertibles are non-callable with no investor puts. There is full dividend and takeover protection.
Proceeds will be used to fund capital expenditures, working capital and general corporate purposes.
Stephanie Rotondo contributed to this article
Mentioned in this article:
CommonWealth REIT NYSE: CWH
| CommonWealth REIT convertibles: | NYSE: CWHPE
|
| HomeAway Inc. | Nasdaq: AWAY
|
| KB Home | NYSE: KBH
|
| Lennar Corp. | NYSE: LEN
|
| Solazyme Inc. | Nasdaq: SZYM
|
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