9/12/12 Meritage Homes (MTH)
$100m (15m) sen cb coming tonight from CITI/JPM/DB/BOA. Terms 20 yr 1.375-1.875% up 47.5-52.5%, 5 yr put call. UOP = gcp. Homebuilders in 2012 = REITs in 2007 (the more allocated the more resistance & the more we hear –ve basis. 5yr CDS 300 but illiquid. Both pari 7.731% 2017 and 7.15% 2020 OAS L+500. –ve basis argument like brw facility, if you can buy tight cds or take cheap brw, u would. Just cos 95% of mkt does not use CDS does not change the fact that cheap CDS exists. No leaps, ADV = 640k, 90d 50/10 ile = 47/36. We’ll use 35. Using 300 bp CDS =105. Using L+425 = 101.1. Clearly if u don’t buy CDS then not cheap. This one may be a home builder too far. 50% being worst premo yet on smallest builder not for us. Prefer LEN. SPF, RYL.