All about converts

$85m [$15m] senior unsec cb on GBX pricing tonight from BS/Boa. Terms 20yr, 2 1/8-5/8% up 27.5-32.5%, nc7, puts 7,10,15 t/o dvd prot. This deal was a real eye opener this am. GBX is a $625M mkt cap that burns cash. We were surprised to see that their pari-passu 8.75% trades at L+195. Pro-forma leverage is modest at 3.5x but we are not comfortable using 200 over. Duration to the call of the 8 3.8% is 5 yrs. THis convert is 6+. SO we;ll use L+225. Historically, vol=40s, but ADV is only 244k. If 70% is hedged on a 75%, 1M shares need to be sold. Only the 1st 500K are reg borrow. So we’ll use 30% vol and 50bps. THeo=97/99.25/101.75. We don’t believe in sustainability of 200 over. However, 85m deal will get done, but is not suited to most.
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