All about converts

$250m (+37.5m) sen unsec cb coming tonight from CITI/JPM. Terms: 6yr, 0.25-0.75% up 45-50%, 4yr s/call (m/whole), full pctns. UOP = gcp/acq. Existing cb came 05/12 1.625% up 42.5% w/stock @$22.48 (stock up 70% since then). BIG model disparity btw ITM & ATM. ITM = existing RYL 1.625% & LEN 2.75%/3.25% cheap skew 2 listed vs o/r dominated KBH & TOL. KBH 1.375% ~121 and 5 points rich theorectically (using 275/35). TOL ~110 & 2.5 points rich 2 model (100 bp/32%). Market fact: balanced/close 2 par just trades better in this cycle. This w/change but until then, you will make more $ owning rich TOL over cheap LEN. We’ll use 6 yr CDS 250/35. Theo = 100. Re-strike par entry point to biggest macro play in US so model really is academic. BUY