Ryland (RYL)
$150m (+22.5m) sen unsec cb coming tonight from CITI/JPM. Terms: 6yr, 1.625-2.125% up 37.5-42.5%, full pctns. UOP=gcp/debt repayment. Larger LEN has 3.25% which back out L+460 to 11/16, RYL 6 yr CDS is ~320 mid but sector trades with basis (100-150 bps). Z-spread on RYL 6.625% ’20 str8 ~480bp. We’ll use L+450 for 6 yr. 01/13 leaps illiquid but ~42iv, 2yr 90d 10/50%ile = 35/43 vol. We’ll use 35 vol. Theo = 102.15. Have heard some getting -0.25 on brw but most GC. Concerns are; brw & cds mkt disappearing on way down making rehedge difficult plus fat optics. RLY 1.875% up 40 with tight CDS means u can only lock in real model cheapness by actually buying CDS o/wise it is a model trap. However, space is cheap, its small deal and will get done. BUY