Older Starwood Waypoint ‘comes in’ sharply with new deal; planned Dynegy ‘looks fine’

By Rebecca Melvin

New York, Oct. 7 – Convertibles traded weakly on Tuesday as yield names continued to move lower amid a general trend in the space favoring cash and following a couple of issue-specific situations that beat up investors already this week, a New York-based trader said.

Starwood Waypoint Residential Trust’s older 3% convertibles, which priced three months ago, came in 3 points on a dollar-neutral, or hedged, basis on Tuesday on the heels of the real estate investment trust’s new deal of $150 million of three-year convertible notes, which were expected to price after the market close at a 4% to 4.5% coupon and a 20% to 25% premium.

The older Starwood paper has a five-year duration.

“The new deal comes with a shorter maturity but better coupon and lower premium than the existing [notes]. Holders of the existing got screwed by the company doing that,” a Connecticut-based market source said.

Meanwhile, Dynegy Inc. planned to price $400 million of three-year mandatory convertible preferred shares after the market close that looked fine at the midpoint of talk, but unfavorable at the rich end of talked terms, a New York-based trader said.

Independent power producers, of which Dynegy is one, are well represented in the convertibles space.

For example, Exelon Corp. priced a $1.15 billion deal of equity units in June. Those units slipped below par last week but were now above par at about 52, an East Coast-based buysider said.

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