Great Ajax on tap; Wayfair eyed, old convertibles contract; HC2 prices; Sarepta active

By Abigail W. Adams

Portland, Me., Nov. 14 – Volatility continued to roil markets on Wednesday with several convertibles issuers seeing their equity slashed as the Dow Jones industrial average closed the day with triple digit losses for the fourth consecutive session.

While market conditions caused one potential convertibles issuer to withdraw its offering, more new paper is on deck.

Great Ajax Corp. plans to price an add-on to its $25-par 7.25% convertible notes due 2024 prior to the market open on Thursday with price talk for a 1% to 1.25% discount on the reoffer price, according to a market source.

The size of the offering is to-be-determined and may be enlarged from the targeted amount, the source said.

Raymond James & Associates and JMP Securities are joint bookrunners for the registered offering.

Wayfair Inc. plans to price $500 million of six-year convertible notes after the market close on Wednesday.

The deal modeled cheap based on underwriters’ assumptions but was seen as fair value with a wider credit spread, sources said.

While the e-commerce company, which is focused on home decor, marketed its new convertible notes offering, the outstanding 0.375% convertible notes due 2022 were active in the secondary space.

The notes were contracting slightly as sellers made room for the new paper.

Wayfair’s newest convertible notes offering was surprising to some market sources, given conditions in the markets which caused Ribbon Communications Inc. to withdraw its $150 million offering of five-year notes.

While the deal had attractive terms, sources said, Ribbon Communications stock cratered during bookbuilding on Tuesday, dropping as much as 25% in intraday trading but closing the day down 6.49%.

Ribbon Communications’ stock was largely flat during Wednesday’s session.

HC2 Holdings Inc. priced $55 million of four-year convertible notes with a coupon of 7.5% and an initial conversion premium of 20% prior to the market open on Wednesday.

The convertible deal priced alongside a downsized $470 million offering of three-year senior notes, which had been sidelined for the past few weeks due to market volatility.

Meanwhile, the risk-off sentiment in equities continued to put pressure on the tech and biopharmaceutical sectors. However, the convertibles in those sectors were holding in the space.

Sarepta Therapeutics Inc.’s 1.5% convertible notes due 2024 dropped on an outright basis but improved on hedge on Wednesday with stock down almost 17% since its secondary equity offering.

KBR Inc.’s newly priced 2.5% convertible notes due 2023 remained active in the secondary space with the notes losing some footing.

Wayfair eyed

Wayfair plans to price $500 million of five-year convertible notes after the market close on Wednesday with price talk for a coupon of 0.625% to 1.125% and an initial conversion premium of 32.5% to 37.5%, according to a market source.

Underwriters were marketing the deal with a credit spread of 300 basis points over Libor and a 42% vol., which modeled about 1.1 points cheap at the midpoint of talk, a market source said.

However, other sources pegged assumptions as 400 bps over Libor and a 45% vol, which placed the deal at fair value.

The e-commerce company’s 0.375% convertible notes trade around 300 bps over Libor, a market source said.

However, a more cautious estimate would place the new deal with a wider credit spread, the source said.

While bookbuilding was under way, the company’s outstanding 0.375% convertible notes due 2022 were active in the secondary space with sellers making room for the new higher coupon offering.

The notes dropped about 6 points outright and were contracted about 0.5 point dollar-neutral in the high-volume activity, sources said.

The 0.375% notes were seen trading at 108.4 versus an equity price of $89.54 shortly before market close.

With more than $21 million of the bonds on the tape late in Wednesday’s session, the notes were among the most actively traded issues of the day.

Wayfair stock closed Wednesday at $87.85, a decrease of 5.24%. Stock has fallen about 20% since Oct. 31.

HC2 prices

HC2 priced $55 million of four-year convertible notes prior to the market open on Wednesday with a coupon of 7.5% and an initial conversion premium of 20%.

The new paper was not active in the secondary space, sources said.

Jefferies LLC was the bookrunner for the Rule 144A deal, which priced alongside a $470 million offering of three-year senior notes.

The senior notes priced with a coupon of 11½% and a reoffer price of 98.75 to yield 12%.

HC2 initially launched a $535 million offering of five-year senior notes on Oct. 22, but execution of the deal was sidelined due to market volatility.

KBR slips

KBR’s newly priced 2.5% convertible notes due 2023 remained active in secondary trading with the notes slipping on an outright basis.

The 2.5% notes slipped to a 98 handle during Wednesday’s session after trading between 99.25 and par on their market debut.

They were seen trading at 98.25 in the late afternoon with more than $10 million of the bonds on the tape.

KBR stock closed Wednesday at $19.20, a decrease of 1.39%.

Sarepta up on hedge

Sarepta Therapeutics’ 1.5% convertible notes due 2024 saw high volume activity on Wednesday as stock continued its downward momentum since its secondary equity offering on Nov. 8.

The 1.5% notes slid 18 points outright on Wednesday. They were seen trading at 167 versus an equity price of $110.00 late in the session.

The convertible notes expanded 1 point on an outright basis, a market source said.

However, many of the high growth health care names are held by outright accounts, the source said.

The notes were trading at 194 outright when Sarepta priced a secondary equity offering at $131.00 on Nov. 8.

After dropping as low as $108.56 in intraday trading, Sarepta stock closed Wednesday at $112.06, a decrease of 4.03%.

At its lowest point on Wednesday, stock had posted $87 million in losses, a market source said. “All of that happened in four days,” the source said.

The convertible notes were trading at 194 when the secondary equity offering priced.

Mentioned in this article:

Great Ajax Corp. NYSE: AJX

HC2 Holdings Inc. NYSE: HCHC

KBR Inc. NYSE: KBR

Ribbon Communications Inc. Nasdaq: RBBN

Sarepta Therapeutics Inc. Nasdaq: SRPT

Wayfair Inc. NYSE: W

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