Wayfair convertible notes offering eyed, existing notes expand; Revance gets a lift

By Abigail W. Adams

Portland, Me., Sept. 8 – One name dominated the convertibles primary and secondary markets on Thursday – Wayfair Inc.

The home decor e-commerce company became the latest convertible issuer to launch a refinancing deal with a $600 million offering of five-year convertible notes set to price after the market close.

The deal looked cheap to rich based on the borrow cost and assumptions used.

While some sources felt the credit spread used by underwriters was too tight, the deal played to heavy demand with proceeds to be used to repurchase for cash a portion of its 1.125% convertible notes due 2024 and 0.625% convertible notes due 2025 in privately negotiated transactions.

Wayfair’s outstanding issues dominated activity on an otherwise quiet day in the secondary space with the notes making large gains on the buyback.

Outside of Wayfair, there were few notable movements as equity markets extended their gains after a choppy start.

While the European Central Bank’s 75 basis point rate increase spooked markets at the open, equity indexes quickly rebounded and added to the gains from Wednesday’s strong session.

The Dow Jones industrial average closed Thursday up 193 points, or 0.61%, the S&P 500 index closed up 0.66%, the Nasdaq Composite index closed up 0.60% and the Russell 2000 index closed up 0.81%.

There was $80 million on the tape about one hour into the session and $420 million in reported volume about one hour before the market close.

ON Semiconductor Corp.’s 0% convertible notes due 2027 again saw heavy volume with the notes gaining alongside stock.

Revance Therapeutics Inc.’s 1.75% convertible notes due 2027 skyrocketed after the Food and Drug Administration approved its Botox alternative treatment.

Wayfair in focus

Wayfair plans to price $600 million of five-year convertible notes after the market close on Thursday with price talk for a coupon of 3.25% to 3.75% and an initial conversion premium of 27.5% to 32.5%, according to a market source.

The deal was in the market with assumptions of 900 bps over Libor and a 45% vol.

Using those assumptions, the deal looked 0.625 point rich or 1.3 points cheap at the midpoint of talk based on the borrow cost, sources said.

Some sources saw the deal more than 2 points cheap.

While some felt the 900 bps credit spread was tight, it was in line with the spreads Wayfair’s outstanding convertible notes have traded with, a source said.

Some sources did not feel the deal was attractive with the fundamentals of the company week.

However, demand was strong with proceeds to be used to repurchase for cash a portion of its 1.125% convertible notes due 2024 and 0.625% convertible notes due 2025 in privately negotiated transactions, it did not have to be.

“You’d think they’d be giving it away but they don’t have to,” a source said.

The “kiss” will be in the buyback of the outstanding notes, which was driving demand for the new issue.

Wayfair’s outstanding convertible notes dominated activity on an otherwise quiet day in the convertibles secondary space and were making large dollar-neutral gains with the notes trading up to their buyback price.

The 1.125% convertible notes due 2024 were trading at 88.375 versus a stock price of $47.15 early in the session.

They traded at 88.875 versus a stock price of $47.93 in the late afternoon.

The notes expanded 2 points dollar-neutral, a source said.

There was $23 million in reported volume.

The 0.625% convertible notes due 2025 were changing hands at 73.625 early in the session and 73.375 in the late afternoon.

They rose 3 points dollar-neutral, a source said.

There was $16 million in reported volume.

The 1% convertible notes due 2026 were trading at 71.875 early in the session and 71.5 in the late afternoon.

There was $10 million in reported volume.

The majority of trades in Wayfair’s outstanding notes were swap trades, a source said.

Wayfair’s stock traded to a high of $49.35 and a low of $46.15 before closing the day at $48.81, a decrease of 3.73%.

ON Semiconductor active

For the second time in as many days, ON Semiconductor’s 0% convertible notes due 2027 topped the volume charts.

The 0% convertible notes were on the rise on a strong day for the stock.

The notes rose 2.75 points outright with stock up 3.5%.

They were changing hands at 144.125 versus a stock price of $69.37 in the late afternoon.

There was $13 million in reported volume, making the issue among the most active of Thursday’s session.

Thursday marked the second time the convertible notes saw heavy volume with the convertible notes also the most actively traded issue during Tuesday’s session.

A Botox-alternative lift

Revance’s 1.75% convertible notes due 2027 were major winners during Thursday’s session as stock surged following FDA approval for its Botox alternative.

The 1.75% convertible notes rose about 8 points outright with stock up more than 20%.

The 1.75% notes were changing hands at 104 versus a stock price of $24.33 heading into the close.

They expanded several points dollar-neutral, a source said.

Revance’s stock traded to a high of $25.47 and a low of $22.02 before closing the day at $25.30, an increase of 21.58%.

The biotech company was boosted after FDA approval of its Botox alternative, making it one of the few companies with FDA approval for an injectable wrinkle treatment, a source said.

Mentioned in this article:

ON Semiconductor Corp. Nasdaq: ON

Revance Therapeutics Inc. Nasdaq: RVNC

Wayfair Inc. NYSE: W

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.