Morgan Stanley on September 20. Like many
blocks priced in September, it has traded
poorly since then, another reason why there
have not been many in the past month.
KKR, which last sold Gardner Denver in
May via a US$823m marketed follow-on at
US$31.00 a share, reduced its stake to 35.5%.
Selling at a lower price is unfortunate, though
KKR and other sponsors will be scouring their
portfolios to identify assets that are easiest to sell
in a effort to buoy fourth-quarter realisations.
Gardner Denver is coming off solid
quarterly results. The company reported
third-quarter adjusted Ebitda of US$182.2m
on revenue of US$689m, versus the
US$181.1m and US$702.3m consensus.
The company generated solid free
CASHmOWûOFû53MûINûTHEûQUARTER
Gardner Denver also reiterated full-year
Ebitda guidance of US$690m–$705m.
This growth, combined with debt
repayment, could bring net leverage down
to roughly two times by year-end. That could
mean that KKR’s next sell-down, after the
90-day lock-up, comes with a stock buyback.
NEW RESIDENTIAL YIELD HAS OVERNIGHT
APPEAL
NEW RESIDENTIAL INVESTMENT, a mortgage REIT
THATûBENElTSûFROMûRISINGûINTERESTûRATES ûRAISEDû
fresh funds for investment via a US$433m all-
primary block trade late on Wednesday.
Joint bookrunners Credit Suisse, Barclays,
Goldman Sachs, BTIG and UBS priced the sale
of 25m New Residential shares or 7% of
outstanding at US$17.32, a 3.1% discount to
last sale.
The deal was struck at a 2.7% premium to
New Residential’s US$16.87 book value per
share at September 30.
The underwriters made short work of the
offering, pricing it by 6:20pm New York
time, in part because they were conscious
investors would want to head home early
for Halloween festivities, one banker close
to the deal said.
Externally managed by Fortress
Investment, New Residential was a relative
outperformer in October’s market swoon,
rising 0.3% versus the S&P 500’s 6.9% loss for
the month. Its shares yield 11.5% annually at
the current 50-cent quarterly payout.
The REIT, which focuses on mortgage
servicing rights and non-agency mortgage-
BACKEDûSECURITIES ûISûBENElTINGûFROMûRISINGû
long-term interest rates and a steepening
yield curve.
New Residential reported better than
expected earnings in the third quarter,
including core earnings of 63 cents a share
that were 7c better than the estimate of
Credit Suisse analysts.
In a report released ahead of the offering,
Credit Suisse raised its 2018 earnings
estimates to US$2.36 a share, from US$2.27,
and bumped estimates for both 2019 and
2020 to US$2.25, from US$2.20, on higher
expected investment levels.
During the quarter, New Residential
bought MSRs totalling approximately
US$43bn of unpaid principal balance,
helping to bolster its servicing revenues.
Going into the offering, New Residential
already had excess liquidity through its
holdings of US$330m of cash and US$377m
OFûUNDRAWNû-32ûlNANCINGûCAPACITY
“We expect New Residential to continue
TOûGENERATEûAûBEST
IN
CLASSû;RETURNûONûEQUITY=û
given its attractive business mix between
mortgage servicing rights and non-agency
MBS with associated call rights,” Credit
Suisse’s analysts wrote.
On the mortgage REIT’s earnings
conference call, New Residential CEO
Michael Nierenberg said he expected
INTERESTûRATESûTOûCONTINUEûTOûRISEûANDûBENElTû
the vehicle’s portfolio.
New Residential’s portfolio would
perform “extremely well” since MSRs were
ONEûOFûTHEûFEWûlXED
INCOMEûASSETSûTHATûROSEû
in value as rates went up, while it also had
HEDGESûINûPLACEûTOûPROTECTûITSûlXED
RATEû
exposure, Nierenberg said.“The general view, and I think we
continue to agree with that view unless our
President changes this, is that interest rates
will continue to climb,” he said.
“The way that our portfolio is just set up
with our mortgage servicing rights, high-
coupon mortgages on our loan book and our
call rights, we think our portfolio should
continue to do extremely well in an up-rate
environment.”
He also said he expected more MSR
buying opportunities to emerge.
“We do believe that we’re going to see
more MSRs come to market as interest rates
continue to rise.
“Mortgage bankers need to raise capital.
So we think the way that we’re currently set
up, it should be a great opportunity for our
company.”
!TûTHEûOFFERINGûPRICEûANDûREmECTINGûAû
quarterly payout of 50 cents a share, New
Residential trades on a dividend yield of 11.5%.STRUCTURED EQUITY
FRANCE
BAML ABANDONS OWN EXCHANGEABLEBANK OF AMERICA cancelled its €400m
exchangeables issued through MERRILL LYNCH
into AXA last Tuesday. The cash-settled
three-year EBs were offered on Monday with
a yield to maturity of minus 2.31% to minus
ûANDûAûlXEDûûPREMIUM
Notably the placing was on the public side
of the business by the equities team, not
ECM or syndicate, in contrast to other bank-
issued exchangeables.
One observer not involved said he had
heard a credit spread of 10bp was used,
much tighter than the bank’s CDS at around
35bp. Again that differed from earlier deals
where banks used CDS for the spread.SAFRAN CARRIES OUT BUYBACK OF
OCEANES DUE 2020Aeronautics group SAFRAN is buying back its
OCEANE CB due 2020, with BNP Paribas and
CA-CIB running a reverse bookbuild that
launched on Monday. The buyback totalled
€633.55m, representing 97.47% of the
outstanding bonds.
The repurchase price will be equal to the
VWAP for October 30 to November 2,
increased by €0.90 per 2020 OCEANE. The
shares closed at €108.65 on Monday and the
bonds were bid at €109.20.
A result was not forthcoming by the
London close on Friday.GLOBAL CONVERTIBLE OFFERINGS
BOOKRUNNERS: 1/1/2018 TO DATE
Managing No of Total Share
bank or group issues US$(m) (%)
1 Goldman Sachs 54 10,911.40 13.3
2 JP Morgan 56 8,505.76 10.4
3 Morgan Stanley 49 8,041.68 9.8
4 BAML 38 6,644.41 8.1
5 Citigroup 26 3,810.36 4.6
6 Deutsche Bank 20 3,221.77 3.9
7 UBS 9 2,508.98 3.1
8 Credit Suisse 21 2,508.80 3.1
9 Barclays 16 2,326.74 2.8
10 Wells Fargo 16 2,031.12 2.5
Total 300 82,117.35
Including exchangeables and domestic offerings.
Source: Refinitiv SDC code: C9
GLOBAL CONVERTIBLE OFFERINGS – US
BOOKRUNNERS: 1/1/2018 TO DATE
Managing No of Total Share
bank or group issues US$(m) (%)
1 Morgan Stanley 38 6,655.62 17.0
2 BAML 33 6,074.11 15.5
3 Goldman Sachs 38 5,971.48 15.3
4 JP Morgan 40 5,189.03 13.3
5 Citigroup 17 2,518.10 6.4
6 Wells Fargo 16 2,031.12 5.2
7 Barclays 13 2,023.49 5.2
8 Deutsche Bank 10 1,250.83 3.2
9 Jefferies 10 1,036.37 2.6
10 Credit Suisse 11 982.33 2.5
Total 103 39,142.46Source: Refinitiv SDC code: C9a