Morning Commentary: QTS Realty Trust, Redwood Trust hit the market; Wix.com offering eyed

By Abigail W. Adams

Portland, Me., June 21 – While the pace of new convertibles issuance may have slowed, the primary market saw a burst of activity with two deals pricing after the market close on Wednesday and one more on deck for after the market close on Thursday.

New paper from Redwood Trust Inc. and QTS Realty Trust Inc. hit the market on Thursday with mixed performances in the secondary space.

While trading activity focused on the new deals, the market eyed Wix.com Ltd.’s offering of $350 million five-year convertible notes. The deal modeled about 0.75 point cheap based on the underwriters’ assumptions, a market source said.

Redwood’s deal

Redwood Trust priced $200 million of six-year convertible notes after the market close on Wednesday with a coupon of 5.625% and an initial conversion premium of 10%.

Pricing came at the cheap end of talk for a coupon of 5.125% to 5.625% and the rich end of talk for an initial conversion premium of 6% to 10%, according to a market source.

The new notes dominated trading activity in the secondary space with most trades between 99 and 99.5, a market source said.

The deal was “a tough placement” with current holders of Redwood Trust’s convertible notes “none too enamored” with the new offering, the source said.

The pricing of the new notes was tight, and the company’s outstanding debt is high compared to its market cap, the source said.

The market for REITs was “pretty saturated” by the end of last year, and buyers are selective when it comes to the paper from the sector, a market source said.

However, Redwood is a well-known name in the convertibles universe and there were buyers who became involved to increase their position in the company, the source said.

QTS’ deal

QTS Realty priced an upsized $275 million of $100-par series B cumulative convertible perpetual preferred stock after the market close Wednesday on the cheap end of talk with a dividend of 6.5% and an initial conversion premium of 20%.

Price talk had been for a dividend of 6% to 6.5% and an initial conversion premium of 20% to 25%, according to a market source.

The preferred stock was active in secondary trading. The preferreds dropped below par to $99.5 early in the session with stock down about 90 cents.

However, the convertible preferreds rallied as common stock cut its losses. The preferreds traded as high as $101 with common stock down 16 cents.

Wix.com eyed

Wix.com plans to price $350 million of five-year convertible notes after the market close on Thursday with price talk for a coupon of 0% to 0.5% and an initial conversion premium of 30% to 35%, according to a market source.

The deal is being marketed with a credit spread of 225 bps over Libor and 40% vol., according to a market source.

The deal modeled about 0.75 point cheap at the midpoint of talk, the source said.

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