Fluor convertible preferreds skyrocket; Braemar Hotels upsizes; AirBnB, DraftKings rise

By Abigail W. Adams

Portland, Me., May 14 – The convertibles primary market saw a relatively active week despite the turbulence in equities.

Two new deals totaling $600 million priced after the market close on Thursday bringing the weekly tally to $2.4 billion, which priced over six deals.

Fluor Corp. priced an upsized offering of $525 million, or 525,000 shares, of par-of-$1,000 convertible perpetual preferred stock, and Braemar Hotels & Resorts, Inc. priced an upsized $75 million of five-year convertible notes.

Fluor’s convertible preferreds skyrocketed on debut with the offering very attractive, sources said.

Meanwhile, the secondary space closed the week on firm footing with embattled growth stocks boosted on a strong day for equities as fears about inflation waned.

“It’s been a good bounce back after the past two days,” a source said.

However, volume was relatively light with $689 million on the tape heading into the market close.

DraftKings Inc.’s 0% convertible notes due 2028 snapped their downward trend on Friday with the notes improved on an outright and dollar-neutral basis.

Airbnb Inc.’s 0% convertible notes due 2026 also gained following the company’s earnings report.

Fluor active

Fluor sold an upsized offering of $525 million, or 525,000 shares, of par-of-$1,000 convertible perpetual preferred stock after the market close on Thursday with a 6.5% dividend and an initial conversion premium of 17.5%.

The deal priced at the cheap end of talk for a dividend of 6% to 6.5% and an initial conversion premium of 17.5% to 22.5%, according to a market source.

The greenshoe was also upsized to $75 million. The initial size of the offering was $450 million with a greenshoe of $67.5 million.

Some buyers chose not to play the name due to environmental concerns with the engineering and construction company servicing the oil and gas industry, a source said.

However, the deal was in demand with allocations tight.

There was a debate about whether the offering should be considered a mandatory convertible preferred or was a rare instance of an actual convertible preferred, due to the deal’s unique call structure.

The preferred stock has one year of hard call protection and is then provisionally callable for three years subject to a 130% hurdle.

While some considered the deal a new kind of mandatory, due to the call structure, others saw it as what it was stated to be – a perpetual convertible preferred with a soft call for three years.

Real mandatories have an upper and lower strike price, a source said. However, Fluor’s new offering only has one, a source said.

The structure is unique and has rarely been encountered in the history of the convertibles market, another source said.

The new paper skyrocketed on debut with the notes trading up 5 points, sources said.

The offering was so cheap, some sources were surprised the preferreds didn’t climb even higher.

The 6.5% dividend and low premium was very attractive, sources said.

Braemar upsizes

Braemar Hotels & Resorts priced an upsized $75 million of five-year convertible notes after the market close on Thursday at par with a coupon of 4.5% and an initial conversion premium of 25%, according to a company news release.

Pricing came at the cheap end of talk for a coupon of 4% to 4.5% and at the midpoint of talk for an initial conversion premium of 22.5% to 27.5%, according to a market source.

The small wall-crossed offering was not active in the secondary space, sources said.

Airbnb’s earnings

Airbnb’s 0% convertible notes due 2026 were making gains on an outright and dollar-neutral basis following the company’s earnings report.

The 0% convertible notes traded up to 92.5 in the late afternoon.

They improved about 0.25 to 0.5 point dollar-neutral, a source said.

The notes were among the most actively traded in the secondary space with $23 million in reported volume.

Airbnb’s stock traded to a low of $131.67 and a high of $142.25 before closing the day at $141.20, an increase of 4.01%.

Stock broke its downward spiral after the online marketplace for vacation rentals reported first-quarter earnings.

Earnings were mixed with the company reporting an operating loss that was more than triple expectations.

However, the net loss was due to non-recurring expenses and gross bookings and revenue exceeded expectations.

Airbnb reported a net loss of $1.2 billion versus expectations for a net loss of $341 million.

Losses per share were $1.95 versus expectations for losses per share of $1.10.

Revenue was $887 million versus expectations for revenue of $719.8 million, and gross bookings rose to $10.3 billion versus the $7.47 billion expected.

DraftKings snaps back

DraftKings’ 0% convertible notes due 2028 broke their losing streak on Friday with the notes improved on an outright and dollar-neutral basis.

The embattled notes rose 3 points outright as stock jumped more than 9%.

They were changing hands at 87 versus a stock price of $44.83 heading into the market close.

The notes improved about 1 point dollar-neutral, a source said.

There was about $18 million in reported volume during Friday’s session.

DraftKings’ stock traded to a high of $45.29 and a low of $41.44 before closing the day at $44.89, an increase of 9.51%.

Mentioned in this article:

Airbnb Inc. Nasdaq: ABNB

Braemar Hotels & Resorts, Inc. NYSE: BHR

DraftKings Inc. Nasdaq: DKNG

Fluor Corp. NYSE: FLR

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