Morning Commentary: FARO prices overnight; Wayfair convertible notes gain on layoffs

By Abigail W. Adams

Portland, Me., Jan. 20 – The convertibles primary market closed the week with one small offering pricing.

FARO Technologies Inc. priced $60 million of five-year convertible notes after the market close on Thursday.

The small overnight offering looked more than 10 points cheap, a source said, a necessity given the damage done to the stock and the difficulty of the borrow.

However, the new paper was largely tucked away and not seen in early trading.

Meanwhile, trading activity remained subdued as equities shook off the weakness of the previous two sessions and launched the day with gains.

The Dow Jones industrial average was up 49 points, or 0.14%, the S&P 500 index was up 0.56%, the Nasdaq Composite index was up 1% and the Russell 2000 index was up 0.57% shortly before 11 a.m. ET.

Positive earnings and cost cutting measures from big tech were helping to boost investor sentiment.

There was $58 million in reported convertibles trading volume about one hour into the session with one name accounting for nearly one-third of activity in the space – Wayfair Inc.

Wayfair’s convertible notes were making large outright gains as stock surged after the home goods e-commerce company announced mass layoffs.

FARO’s overnight

FARO priced $60 million of five-year convertible notes after the market close on Thursday at par with a coupon of 5.5% and an initial conversion premium of 20%.

Pricing came in line with talk for a fixed coupon of 5.5% and a fixed conversion premium of 20%, according to a market source.

The deal was marketed with assumptions of a 700 bps credit spread and a 40% vol.

Using those assumptions, the deal looked 10 points to 15 points points cheap, a source said.

The cheapness of the deal was most likely to compensate for the tough borrow and the destruction of stock which typically accompanies overnight offerings, the source said.

The small deal was tucked away and not seen trading early Friday.

FARO’s stock was seen at $27.07, a decrease of 23.31%, shortly before 11 a.m. ET.

Wayfair in focus

Wayfair’s convertible notes were in focus and making large outright gains alongside stock after the company announced mass layoffs.

Wayfair’s 0.625% convertible notes due 2025 were the most actively traded issue in the capital structure and in the secondary space.

The 0.625% notes rose 3.5 points outright with stock up more than 15%.

The notes were changing hands at 73.875 versus a stock price of $43.44 early in the session.

The yield was about 12.375%.

There was $8 million in reported volume.

Wayfair’s 1% convertible notes due 2026 jumped almost 6 points outright.

They were trading at 68 versus a stock price of $43.53 early in the session.

The notes were also trading with a 12.375% yield.

There was $5 million in reported volume.

Wayfair’s 3.25% convertible notes due 2029 jumped 9 points outright.

The notes were seen at 92.875 versus a stock price of $41.81 early in the session on $2 million in reported volume.

Wayfair’s stock was trading at $45.45, an increase of 16.84%, shortly before 11 a.m. ET.

Wayfair announced on Friday that it was cutting about 10% of its global workforce as part of its cost-efficiency plan.

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