Morning Commentary: Wayfair convertible notes skyrocket on secondary market debut

By Abigail W. Adams

Portland, Me., May 10 – It was another active morning in the convertibles secondary space with new supply jumpstarting trading activity.

Wayfair Inc. was the name of the day after the serial issuer priced $600 million of five-year convertible notes in a refinancing of its 2024 and 2025 convertible notes.

The deal played to solid demand during book building despite some trepidations about the issuer and an increasingly difficult borrow.

The new notes skyrocketed in early trade with Wayfair’s outstanding notes active on their buyback.

The new paper hit the secondary space as markets digested the latest Consumer Price Index report.

Equity indexes initially surged following the report’s release but gave back their early gains to turn mixed as the session progressed.

The Dow Jones industrial average was down 136 points, or 0.41%, the S&P 500 index was up 0.02%, the Nasdaq Composite index was up 0.55% and the Russell 2000 index was up 0.17% shortly before 11 a.m. ET.

There was $308 million in reported convertible bond trading volume about one hour into the session with Wayfair accounting for nearly one-half of the activity on the tape.

Wayfair in focus

Wayfair priced $600 million of five-year convertible notes after the market close on Tuesday at par at the midpoint of talk with a coupon of 3.5% and an initial conversion premium of 25%.

Price talk was for a coupon of 3.25% to 3.75% and an initial conversion premium of 22.5% to 27.5%.

The deal played to robust demand during book building despite some trepidations about the credit and the an increasingly difficult borrow during Tuesday’s session.

Allocations were tight with the majority placed with holders of the convertible notes that were taken out in the refinancing, a source said.

The demand for the paper followed it into the secondary space with the new notes skyrocketing on debut.

They were trading at 102 with stock flat early in the session, a source said.

The notes expanded 2 points dollar-neutral.

There was $110 million in reported volume.

Wayfair’s offering came as a refinancing of its existing notes with the company repurchasing for cash $82.5 million in principal of its 1.125% convertible notes due 2024 for $77.6 million and $534.5 million in principal of its 0.625% convertible notes due 2025 for $436.2 million.

The notes were bought back at a healthy premium to their previous trading level, a source said.

The buyback price for the 1.125% notes was 93.89, a source said.

The notes were trading between 91.25 and 91.5 the previous session.

The buyback price for the 0.625% notes was 81.57, a source said.

The notes traded up to 80 on Tuesday but were on a 78-handle prior to the deal’s launch.

Following the buyback, the 0.625% notes settled back to an 80-handle with scattered prints in the 80.125 to 80.375 context, a source said.

Wayfair’s stock was changing hands at $35.55, a decrease of 3.03%, shortly before 11 a.m. ET.

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