New Hovnanian in solid debut; Jefferies outperforms shares; XPO stock pummeled before pricing

By Rebecca Melvin

New York, Sept. 20 - Hovnanian Enterprises Inc.'s newly priced 6% convertibles traded actively and up to 101 bid, 102 offered on their debut in the secondary market Thursday, after the Red Bank, N.J.-based homebuilder sold $90 million of its exchangeable note units at terms that were mixed compared to talk.

Despite the lack of stock borrow for hedged players in Hovnanian, the small new issue was the convertible bond market's top volume trader, according to Trace data, a West Coat-based trader said.

Jefferies Group Inc. saw its convertibles trade lower by about a point on an outright basis, but the bonds outperformed compared to the underlying shares after the New York-based investment bank reported revenue and earnings that missed estimates.

Overall, there was a "big step down of volume" in the convertible market on Thursday, compared to earlier in the week.

"Things slowed down, after decent volume," a trader said.

Meanwhile, market players were sizing up two deals that were expected to price after the market close.

Greenwich, Conn.-based business-development company, TICC Capital Corp., priced $100 million of five-year convertibles in a private Rule 144A offering to yield 7.5% with an initial conversion premium of 10%, and Greenwich, Conn.-based trucking concern, XPO Logistics Inc., was expected to price $100 million of five-year convertibles in a registered offering.

Both issuers are small-cap companies, but the BDC was seen as a much tighter credit than XPO. although the stock borrow was said to be difficult in TICC.

XPO Logistics stock was pummeled in trading Thursday, with the shares down $2.71, or 17%, to $12.89. This dive took an already small market cap company and made it even smaller, with the entity weighing in now at just $278 million.

For a company that size, even a $100 million convertible deal is a big pill to swallow, a trader said.

Both deals were seen very cheap, but for many market players that has become a red flag.

"These small deals keep coming, and they are looking really cheap, but it takes some time to look at it because there's a reason it's cheap," a trader said.

Internationally, a subsidiary of South Africa's Steinhoff International Holdings Ltd. priced €400 million of five-year convertibles at par to yield 6.375% with an initial conversion premium of 30%, and a subsidiary of England's Capital Shopping Centres Group plc, priced £300 million of six-year convertible notes on Thursday to yield 2.5%, with an initial conversion premium of 30%.

Hovnanian adds on debut

Hovnanian's newly priced 6% exchangeables traded up to 101 bid, 102 offered on Thursday and closed at about 100.5 bid, 101 offered.

Hovnanian shares were flat, closing down a penny at $3.84.

Stock borrow was a problem for this deal and the issue size was decidedly small, but it put in a "fine" debut, a trader said.

The convert portion of the company's transaction was also decidedly small compared to the straight bond portion. Hovnanian also priced $577 million of 7.25% senior secured first lien notes due 2020 and $220 million of 9.125% senior secured second lien notes due 2020, compared to the $90 million convert deal.

"A lot of guys had trouble getting any borrow on it, but it was still the No. 1 name on Trace, accounting for a third of the volume," a trader said.

"For me, it was another homebuilder coming through, though tiny," the trader said.

Hovnanian subsidiary K. Hovnanian Enterprises Inc. priced the issue of five-year exchangeable note units at par of $1,000 to yield 6%, with an initial conversion premium of 40%, according to a term sheet.

Pricing came at the cheap end of the 5.5% to 6% yield talk and at the rich end of the 35% to 40% premium talk for the units.

The registered deal has a $10 million greenshoe and was sold via joint bookrunning managers J.P. Morgan Securities LLC, Citigroup Global Markets Inc. and Credit Suisse Securities (USA) LLC.

The exchangeable notes are non-callable, and have no puts.

Proceeds from the offerings are earmarked to fund a tender offer and consent solicitation for any and all of Hovnanian's outstanding 10.625% senior secured notes due 2016.

Jefferies 'in' only a little

Jefferies 3.875% convertibles due 2029 traded Thursday at 97.25 and 98, which was down compared to prints on Wednesday at 98.875 and 99.125, a market source said.

"They were 'in' about a point, even though the stock was off a lot," a trader said.

Jefferies shares fell $1.14, or 7.3%, to $14.52 in heavy volume.

"They have a decent amount of premium, and are more of a yield play; it trades more like a bond," a trader said of the 3.875% convertibles.

Jefferies reported net income for its fiscal third quarter of $70.2 million, or 31 cents a shares.

Earnings adjusted for an investment in Knight Capital were 24 cents a share, compared with the average estimate of five analysts surveyed for 26 cents.

Net revenue jumped 45% to $738.9 million from last year. The increase was driven by sales and trading which more than doubled to $475.7 million. Investment banking revenue fell 11% to $2602 million.

Revenue from fixed-income sales and trading surged to $265.7 million from $33.1 million in the year-earlier period. Equity sales and trading revenue climbed 66% to $210 million.

Moody's Investors Service has said that Jefferies has kept leverage down and has a "more liquid, less complex" balance sheet than its larger peers. But it may still cut Jefferies' credit grade as it faces the same capital markets pressures that prompted the downgrade of 15 other banks earlier this year.

XPO Logistics to price

Shares of Greenwich, Conn.-based XPO, a transportation services company, fell 17% on Thursday after its $100 million of five-year convertible senior notes was launched after the market close Wednesday.

The convertibles were talked to yield 4% to 4.5% with an initial conversion premium of 20% to 25%.

The deal looked very cheap using a credit spread of about 1,000 basis points over Libor and a 40% to 45% vol.

"It's about eight points cheap at the mid [point of talk]. But borrow is an issue in the common," a trader said.

In addition, the stock price drop presented a little bit of a situation. "A 5% correction is in line if there is no hedge," the trader said.

That took the market cap down to $227 million.

The issue also has a coupon make-whole feature if the issue is called.

The bonds are non-callable until Oct. 1, 2015 and then provisionally callable subject to shares being at least 130% of conversion, and have a coupon make-whole feature.

The registered, off-the-shelf offering has a $15 million greenshoe and is being sold via Morgan Stanley & Co. LLC, Deutsche Bank Securities Inc. and Jefferies & Co. Inc. as joint bookrunners.

Proceeds will be used for general corporate purposes, which may include potential acquisitions.

TICC prices $100 million

TICC Capital priced $100 million of five-year convertible senior notes after the market close Thursday at par to yield 7.5%, with an initial conversion premium of 10%.

The Rule 144A offering has a $15 million over-allotment option and was sold via Barclays as bookrunner.

Pricing came at the cheap end of talk, which was for a yield of 7% to 7.5% and an initial conversion premium of 10% to 15%.

Capital Shopping prices £300 million

A subsidiary of Capital Shopping launched and priced £300 million of six-year convertible notes on Thursday to yield 2.5%, with an initial conversion premium of 30% above the volume weighted average price of shares during marketing.

Pricing came cheaper than coupon talk for the London based real estate investment company.

UBS Ltd. was sole global coordinator and Bank of America Merrill Lynch, Credit Suisse Ltd. and UBS were joint bookrunners, with HSBC Bank plc acting as lead manager.

Proceeds will be used to refinance short term borrowings including those related to recent acquisitions including the Broadmarsh Center, Nottingham, and positioning the company to be able to make further acquisitions.

Steinhoff prices €400 million

A subsidiary of Steinhoff International priced €400 million of five-year convertibles at par on Thursday to yield 6.375% with an initial conversion premium of 30% over the volume weighted average stock price during marketing.

Originally, the offering was talked at €300 million in size, with a €75 million increase option, and €25 million overallotment option.

Pricing came at the cheap end of talk, which was for a coupon of 5.625% to 6.375% and a 30% to 35% premium.

Steinhoff is also repurchasing ZAR 1.26 billion of its July 2013 convertible bonds at 108.38% per bond. The repurchase will be settled Sept. 26, and is conditional on the settlement of the new convertibles on the same day.

Global coordinators BNP Paribas and Deutsche Bank AG, London Branch, along with HSBC Bank plc were joint bookrunners of the offering.

Steinhoff is a South Africa-based manufacturer and distributor of household goods and related timber products.

Mentioned in this article:

Capital Shopping Centres Group plc London: CSCG

Jefferies Group Inc. NYSE: JEF

Hovnanian Enterprises Inc. NYSE: HOV

Steinhoff Internatinal Holdings Lts. Johannesburg: SHF

TICC Capital Corp. Nasdaq: TICC

XPO Logistics Inc. NYSE: XPO

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.