FARO convertibles price overnight; Wayfair notes gain on layoffs; Marriott active

By Abigail W. Adams

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

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

The small overnight deal 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 with little to no activity in the aftermarket.

Meanwhile, trading activity remained subdued as equities shook off the weakness of the previous two sessions and closed the week on strong footing.

The Dow Jones industrial average closed Friday up 331 points, or 1%, the S&P 500 index closed up 1.89%, the Nasdaq Composite index closed up 2.66% and the Russell 2000 index closed up 1.69%.

Positive earnings, cost cutting measures from big tech, and dovish comments from a Federal Reserve official helped to boost investor sentiment.

There was $58 million in reported convertibles trading volume about one hour into the session and $387 million about one hour before the market close.

Wayfair Inc. was the name of the day with its convertible notes making large outright and dollar-neutral gains as stock surged after the home goods e-commerce company announced mass layoffs.

Marriott Vacations Worldwide Corp.’s convertible notes also saw some activity with holders swapping from the old issue to the new.

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 basis points credit spread and a 40% vol.

Using those assumptions, the deal looked 10 points to 15 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 with only one quote seen early in the session.

The notes were marked at 100 bid, 102 offered early in the session but were not seen in trade.

FARO’s stock traded to a low of $26.11 and a high of $28.80 before closing the day at $27.87, a decrease of 21.05%.

Wayfair in focus

Wayfair’s convertible notes were “the excitement” of Friday’s session with the notes making large outright and dollar-neutral gains as stock soared 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 20%.

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

They were trading at 74 versus a stock price of $46.61 in the late afternoon.

The yield was about 12.375%.

There was $31 million in reported volume in the tranche.

Wayfair’s 1% convertible notes due 2026 jumped more than 8 points outright.

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

The 1% notes jumped to 70.5 versus a stock price of $46.91 in the late afternoon.

The yield dropped to 11¼%.

There was $21 million in reported volume for the 1% notes.

Wayfair’s 3.25% convertible notes due 2029 jumped almost 17 points outright with the notes crossing above par for the first time since shortly after pricing at par in September 2022.

The notes were seen at 92.875 versus a stock price of $41.81 early in the session.

They jumped to 100.25 versus a stock price of $46.99 in the late afternoon.

There was $27 million in reported volume.

After trading as low as 75 in the carnage of 2022, the notes are now trading with the same optics they priced at – a 3.25% yield and a 30% conversion premium, a source said.

Wayfair’s stock traded to a low of $41.57 and a high of $48.94 before closing the day at $46.79, an increase of 20.28%.

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

Marriott active

Marriott’s convertible notes saw some activity on Friday as holders swapped from the old issue to the new.

The 0% convertible notes due 2026 were up 1 point outright with stock up a little more than 1%.

They were wrapped around 106 in the late afternoon.

There was $5 million in reported volume.

The 3.25% convertible notes due 2027 were also up about 1 point outright.

They were changing hands at 106.5 versus a stock price of $153.31 in the late afternoon.

There was also $5 million in reported volume.

The activity was the result of a large swap trade with someone upping their position in the new issue, a source said.

Marriott Vacations’ stock traded to a low of $151.91 and a high of $155.60 before closing the day at $155.44, a decrease of 2.21%.

Mentioned in this article:

FARO Technologies Inc. Nasdaq: FARO

Marriott Vacations Worldwide Corp. NYSE: VAC

Wayfair Inc. NYSE: W

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