Fluor convertible preferreds, Braemar eyed; DraftKings notes weaker in active trading

By Abigail W. Adams

Portland, Me., May 13 – The convertibles primary market continued to churn out deals as equity markets rebounded from three days of losses.

Fluor Corp. plans to price $450 million, or 450,000 shares, of par-of-$1,000 convertible preferred stock after the market close on Thursday.

Due to the unique call structure on the deal, sources debated whether the offering was a non-mandatory or mandatory convertible preferred.

Braemar Hotels & Resorts, Inc. is also on deck with a $50 million offering of five-year convertible notes.

The deal looked cheap. However, it was heard to be wall-crossed.

Meanwhile, the secondary space was active on Thursday with $973 million in reported volume at the market close.

There was a large bids-wanted-in-competition list that was circulating the market due to an outright holder selling, a source said.

While equity benchmarks rebounded and closed the day in the green, growth stocks continued to get hammered with no reprieve for the “No-Nos” in the convertibles market, or the 0% coupon bonds that priced at par.

DraftKings Inc.’s 0% convertible notes due 2028 were the most actively traded name in the secondary space with the notes slightly weaker on a dollar-neutral basis.

Haemonetics Corp.’s 0% convertible notes due 2026 became the latest 0% convertible bond to trade down to the 70s with stock crushed following earnings.

A mandie or not a mandie?

Fluor plans to price $450 million, or 450,000 shares, of par-of-$1,000 convertible preferred stock after the market close on Thursday with price talk for a dividend of 6% to 6.5% and an initial conversion premium of 17.5% to 22.5%, according to a market source.

Due to the unique call structure, sources debated whether the deal was a mandatory or non-mandatory convertible preferred.

Some sources saw the deal as a “rare instance of a non-mandatory convertible preferred,” a source said.

The deal was reminiscent of the concluding line from a John Wayne movie – ‘I thought you were dead,’ the source said.

Another source saw the deal as a new type of mandatory due to its unique call structure.

The convertible preferreds have one year of hard call protection and then become provisionally callable until May 20, 2024 subject to a 130% hurdle and with a cash make-whole payment.

It is then callable at 100% of the threshold appreciation premium.

“It’s a new type of mandatory,” a source said.

The unique structure for the convertible preferreds is not unheard of with some instances of similar structures in the past.

However, it is rare, another source said.

The deal was heard to be in the market with assumptions of 500 basis points over Libor and a 30% vol.

Using those assumptions, the deal looked about 1 point cheap at the midpoint of talk.

Fluor’s convertible preferreds were considered credit positive for the company with proceeds to be used to reduce outstanding debt, Moody’s Investors Service said in a press release.

Braemar wall-crossed

Braemar Hotels plans to price $50 million of five-year convertible notes after the market close on Thursday with price talk for a coupon of 4% to 4.5% and an initial conversion premium of 22.5% to 27.5%, according to a market source.

Using assumptions of 800 bps over Libor and a 32% vol., the deal looked more than 7 points cheap at the midpoint of talk.

However, the small offering was wall-crossed, sources said.

DraftKings active

DraftKings’ 0% convertible notes due 2028 dominated the tape on Thursday.

The notes were changing hands at 84.25 versus a stock price of $41.03 heading into the market close, a source said.

There was more than $30.5 million in reported volume.

The notes were unchanged to contracted about 0.25 point dollar-neutral in the high-volume activity, a source said.

DraftKings’ stock traded to a high of $43.95 and a low of $39.93 before closing the day at $40.99, a decrease of 2.66%.

Haemonetics’ earnings

Haemonetics’ 0% convertible bond due 2026 became the latest “No-No” to trade down into the 70s as stock tanked following an earnings miss.

The notes were down 2.5 points outright as stock nosedived by 13%.

They were changing hands at 78.125 versus a stock price of $50.42 in the late afternoon.

There was more than $16 million in reported volume.

Stock traded to a high of $53.68 and a low of $49.26 before closing the day at $51.81, a decrease of 13.4%.

The global provider of blood and plasma services reported earnings per share of 46 cents, which missed expectations for earnings per share of 67 cents.

However, the company beat on the top line with revenue of $225 million versus analyst expectations for revenue of $223 million.

Mentioned in this article:

Braemar Hotels & Resorts, Inc. NYSE: BHR

DraftKings Inc. Nasdaq: DKNG

Fluor Corp. NYSE: FLR

Haemonetics Corp. NYSE: HAE

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