FARO overnight convertibles on tap; Expedia improves; Smart Global notes strengthen

By Abigail W. Adams

Portland, Me., Jan. 19 – The convertibles primary market saw a fluttering of life on Thursday with an overnight deal set to price shortly after it launched.

FARO Technologies Inc. plans to price $60 million of five-year convertible notes after the market close on Thursday with price talk for a fixed coupon of 5.5% and a fixed conversion premium of 20%, according to a market source.

The deal was heard to be in the market with assumptions of a 700 basis points credit spread and a 40% vol.

The small, wall-crossed offering saved the primary market from closing the week with no new paper pricing.

However, convertible primary market activity paled in comparison to the onslaught of investment-grade and high-yield bond deals that have come over the past week.

Conversations are active and a full pipeline is expected heading into the final weeks of January when companies emerge from earnings season blackouts, sources said.

Meanwhile, it was a relatively quiet day in the convertibles secondary space as equities saw their second consecutive day of heavy selling.

While indexes closed well off their lows, the U.S. hitting its debt limit and recession jitters were weighing on investor sentiment.

The Dow Jones industrial average closed Thursday down 252 points, or 0.76%, the S&P 500 index closed down 0.76%, the Nasdaq Composite index closed down 0.96% and the Russell 2000 index closed down 0.97%.

There was $65 million in reported convertibles trading volume about one hour into the session and $462 million on the tape about one hour before the market close.

Expedia Inc.’s 0% convertibles due 2026 (Baa3/BBB-/BBB-) improved in heavy volume on Thursday with the notes continuing to dominate activity in the secondary space.

Smart Global Holdings, Inc.’s 2.25% convertible notes due 2026 made large gains in active trade after the company announced a privately negotiated exchange for a portion of the notes.

Ford Motor Co.’s 0% convertible notes due 2026 also continued to see heavy volume with the notes continuing to trend lower after breaking above par the previous week.

Volume mover

Expedia’s 0% convertible notes due 2026 were on the rise in heavy volume on Thursday.

While unchanged early in the session, the 0% notes added about 1 point outright by the market close.

The notes were changing hands at 89.282 versus an equity price of $103.62 early in the session.

They traded just shy of 90 in a $5 million plus trade in the late afternoon, a source said.

There was $22 million in reported volume.

Expedia’s stock traded to a low of $102.47 and a high of $108.05 before closing the day at $107.07, an increase of 3.08%.

The notes have dominated trading over the past two sessions.

The bonds are overpriced, a source said, and have a conversion premium of about 140% and a yield on a 3% handle.

However, the notes are investment grade, which has driven demand.

Smart Global gains

Smart Global’s 2.25% convertible notes due 2026 made large gains in active trade after the company announced a privately negotiated exchange for a portion of the outstanding amount.

The 2.25% convertible notes saw a large dollar-neutral expansion on the news.

The notes were seen at 106.875 versus a stock price of $16.25 in the late afternoon, according to a market source.

They expanded 2.5 points dollar-neutral.

There was $15 million in reported volume, which did not appear to be connected to the exchange, a source said.

Smart Global’s stock traded to a low of $15.91 and a high of $16.61 before closing at $16.54, a decrease of 0.66%.

The company announced prior to the market open a dollar-for-dollar exchange with some holders of its 2.25% convertible notes due 2026 for new 2% convertible notes due 2029.

The company issued the new 2% convertible notes and paid $15.6 million in cash in exchange for $150 million in principal of its 2.25% notes.

Smart Global priced $250 million of the 2.25% convertible notes in February 2020.

Ford lower

Ford’s 0% convertible notes due 2026 continued to trend lower alongside stock in active trade on Thursday after breaking above par the previous week.

The 0% convertible notes fell 1.5 points outright with stock off about 1.5%.

They were trading at 97.75 in the late afternoon.

There was $10 million in reported volume.

Ford’s stock traded to a low of $12.04 and a high of $12.36 before closing the day down $12.18, a decrease of 1.81%.

While Ford’s 0% convertible notes have been on a steady downtrend over the past few sessions, the notes launched 2023 on a 94-handle.

They broke above par to trade as high as 102 the previous week as stock rallied alongside broader markets.

However, they fell back below par last Friday as stock tumbled more than 7%.

Mentioned in this article:

Expedia Inc. Nasdaq: EXPE

FARO Technologies Inc. Nasdaq: FARO

Ford Motor Co. NYSE: F

Smart Global Holdings, Inc. Nasdaq: SGH

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