Morning Commentary: $3.08 billion convertibles in five deals on tap; Wix.com skyrockets

By Abigail W. Adams

Portland, Me., Aug. 11 – The convertibles primary market returned to action in full force with one $500 million deal pricing after the market close on Monday and five deals totaling $3.08 billion set to price after the market close on Tuesday.

Wix.com Ltd. priced $500 million five-year convertible notes after the market close on Monday.

The new paper skyrocketed on its aftermarket debut.

Wayfair Inc. is planning to price $1.2 billion, Perficient Inc. is planning to price $185 million and Omeros Corp. is planning to sell $200 million convertible notes after the market close on Tuesday.

The mandatory space also saw some action with KKR & Co. Inc. planning to price $750 million, or 15 million shares, of $50-par three-year series C mandatory convertible preferred stock and American Electric Power Co. Inc. planning to price $750 million, or 15 million, three-year $50-par equity units after the market close on Tuesday.

The deals are the first mandatory offerings since early July.

Wix.com skyrockets

Wix.com sold $500 million five-year convertible notes after the market close on Monday at par with a coupon of 0% and an initial conversion premium of 45%.

Pricing came in line with revised price talk for a fixed coupon of 0% and an initial conversion premium of 45%.

Price talk tightened three times during bookbuilding, a source said. Initial talk was for a fixed coupon of 0% and an initial conversion premium of 30% to 35%.

The deal from the cloud development platform played to massive demand, a source said.

The demand followed the notes into the secondary space.

The 0% notes skyrocketed in the aftermarket.

They were trading between 102 to 103 with stock down more than 2%, a market source said.

The notes dominated activity in the secondary space with more than $90 million of the bonds on the tape about one hour into the session.

Wix.com stock was changing hands at $272.34, a decrease of 2.01%, around 10:45 a.m. ET.

Wayfair eyed

Wayfair plans to price $1.2 billion of five-year convertible notes after the market close on Tuesday with price talk for a coupon of 0.625% to 1.125% and an initial conversion premium of 30% to 35%, according to a market source.

While it was unclear what underwriters were using, one source pegged assumptions as a credit spread of 600 basis points over Libor and a 45% vol.

Using those assumptions, the deal looked 2.75 points cheap at the midpoint of talk, the source said.

The offering will be the fifth outstanding convertible issue from the home decor e-commerce company.

Proceeds will be used to repurchase a portion of the 0.375% convertible notes due 2022 for cash in privately negotiated transactions.

Wayfair has seen a dramatic rebound over the past few months.

The 0.375% notes traded to a low of 60 in mid-March.

However, the notes are now on the verge of triple par and were changing hands around 285 on Monday, according to Trace data.

Wayfair priced a $431.25 million issue of the 0.375% notes in 2017.

Wayfair’s other convertible notes are also deep-in-the-money.

The once struggling e-commerce company nearly doubled its market cap since March, a source said.

On deck

Perficient plans to price $185 million of five-year convertible notes after the market close on Tuesday with price talk for a coupon of 1.125% to 1.625% and an initial conversion premium of 25% to 30%, according to a market source.

Proceeds will be used in part to repurchase for cash a portion of the outstanding 2.375% convertible notes due 2023 in privately negotiated transactions.

The 2.375% convertible notes were changing hands at 127 early Tuesday, according to a market source.

Perficient priced a $143.75 million issue of the 2.375% notes in 2018.

Omeros plans to price $200 million of long five-year convertible notes after the market close on Tuesday with price talk for a coupon of 5% to 5.5% and an initial conversion premium of 22.5% to 27.5%, according to a market source.

Proceeds will be used in part to repurchase a portion of its 6.25% convertible notes due 2023 in privately negotiated transactions.

The 6.25% notes are an illiquid issue. They were last trading around 101.5 at the end of July, according to Trace data.

Omeros priced a $210 million issue of the 6.25% notes in 2018.

Concurrently with the convertible notes offering, the biopharmaceutical company plans to price a secondary stock offering of $125 million.

The mandies

After a little more than one month with no mandatory issuance, two deals are slated for after the market close – both from investment-grade rated companies.

KKR plans to price $750 million, or 15 million shares, of $50-par three-year series C mandatory convertible preferred stock after the market close on Tuesday with price talk for a dividend of 5.75% to 6.25% and an initial conversion premium of 17.5% to 22.5%.

Proceeds, together with cash on hand, will be used to fund the acquisition of Global Atlantic Financial Group Ltd.

The shares will be callable if the acquisition is not completed by May 7, 2021.

S&P Global Ratings assigned the convertible preferred stock a BBB+ rating.

American Electric Power plans to price $750 million, or 15 million, three-year $50-par equity units after the market close on Tuesday with price talk for a dividend of 6.125% to 6.625% and a threshold appreciation premium of 17.5% to 22.5%.

The equity units consist of a common stock forward purchase contract and a 1/20 ownership interest in a par of $1,000 junior subordinated debenture due 2025.

The mandatory offerings are the first to price since II-VI Inc. priced a $400 million offering of three-year par of $200 series A mandatory convertible preferred stock on July 2.

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