Morning Commentary: Starwood convertible notes in focus, below par on debut

By Abigail W. Adams

Portland, Me., June 23 – It was a quiet start to the day in the convertible secondary space on Friday with the exception of one name – Starwood Property Trust Inc.

Starwood priced $350 million of four-year convertible notes after the market close on Thursday at par with a coupon of 6.75% and an initial conversion premium of 12.5%.

Pricing came at the cheap end of talk for a coupon of 6.25% to 6.75% and an initial conversion premium of 12.5% to 17.5%.

The new paper was off to a rough start in secondary market activity with equities launching the day in the red.

The Dow Jones industrial average was down 174 points, or 0.51%, the S&P 500 index was down 0.62%, the Nasdaq Composite index was down 0.94% and the Russell 2000 index was down 0.68% shortly before 11 a.m. ET.

There was $87 million in reported volume about one hour into the session with Starwood’s new notes accounting for almost two-thirds of the total activity in the space.

The new 6.75% convertible notes sank below par out of the gate and continued to move lower in the heavy volume.

The new notes were changing hands at 98.875 versus a stock price of $18.34 about one hour into the session.

There was $57 million in reported volume.

Starwood stock launched the day in the red but popped into positive territory as the session progressed and was changing hands at $18.60, an increase of 0.84%, shortly before 11 a.m. ET.

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