Morning Commentary: Wayfair convertible notes offering eyed, existing notes expand

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.

Price talk is for a coupon of 3.25% to 3.75% and an initial conversion premium of 27.5% to 32.5%.

The deal was in the market with assumptions of 900 basis points 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, sources said.

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

The deal was not very attractive, but 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 will drive demand for the new issue.

Wayfair’s outstanding convertible notes dominated activity on an otherwise slow morning in the convertibles secondary space and were making large dollar-neutral gains.

The 1.125% convertible notes due 2024 gained 2 points outright and dollar-neutral.

The notes were trading at 88.375 versus a stock price of $47.15 early in the session.

There was $17 million in reported volume.

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

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

There was $14 million in reported volume.

The 1% convertible notes due 2026 were changing hands at 71.875 early in the session.

There was $6 million in reported volume.

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

Wayfair’s stock was changing hands at $48.60, a decrease of 4.16%, shortly before 11 a.m. ET.

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