QTS Realty, Redwood Trust, Wright Medical convertibles hit the market; Wix.com eyed

By Abigail W. Adams

Portland, Me., June 21 – While the recent pace of new convertibles issuance may have slowed, the primary market saw a burst of activity with three deals hitting the market on Thursday and one more deal set to price after the market close.

New paper from Redwood Trust Inc., QTS Realty Trust Inc. and Wright Medical Group NV hit the market on Thursday with mixed performances in the secondary space. QTS and Wright Medical were seen expanding on debut. Redwood was trading below its discounted issue price on debut.

While trading activity focused on the new deals, the market eyed Wix.com Ltd.’s offering of $350 million five-year convertible notes.

The deal modeled about 0.75 point cheap based on the underwriters’ assumptions, a market source said.

Redwood’s deal

Redwood Trust priced $200 million of six-year convertible notes after the market close on Wednesday with a discounted offer price of 99.5, a coupon of 5.625% and an initial conversion premium of 10%.

Pricing came at the cheap end of talk for a coupon of 5.125% to 5.625% and the rich end of talk for an initial conversion premium of 6% to 10%, according to a market source.

The discounted issue price pushed the premium down to about 8%, a market source said.

The new notes were among the top volume movers in the secondary space with most trades between 98.75 and 99.5, a market source said.

Redwood stock was down between 5 cents and 15 cents during Thursday’s session, closing the day at $16.55, a decrease of 0.27%.

The deal was “a tough placement” with current holders of Redwood Trust’s convertible notes “none too enamored” with the new offering, the source said.

The pricing of the new notes was tight, and the company’s outstanding debt is high compared to its market cap, the source said.

The market for REITs was “pretty saturated” by the end of last year and buyers are selective when it comes to the paper from the sector, a market source said.

However, Redwood is a well-known name in the convertibles universe and there were buyers who became involved to increase their position in the company, the source said.

Redwood’s 4.75% convertible notes due 2023 were down about 1 point to trade at 97.6 in a single trade on Thursday, according to Trace data.

Redwood’s 5.625% convertible notes due 2019 last traded at 103.25 on June 14.

QTS’ deal

QTS Realty priced an upsized $275 million of $100-par series B cumulative convertible perpetual preferred stock after the market close on Wednesday on the cheap end of talk with a dividend of 6.5% and an initial conversion premium of 20%.

Price talk had been for a dividend of 6% to 6.5% and an initial conversion premium of 20% to 25%, according to a market source.

The preferred stock was active in secondary trading. The preferreds dropped below par to $99.5 early in the session with stock down about 90 cents.

However, the convertible preferreds rallied as common stock cut its losses. The preferreds traded as high as $101 with common stock down 16 cents.

The convertible preferreds returned to just above par later in the afternoon. They were seen expanded 0.375 dollar neutral early in the session.

They improved on a dollar-neutral basis into the afternoon with the notes up about 0.5 point dollar neutral, a market source said.

QTS common stock closed Thursday at $39.40, an increase of 0.54%.

Wright Medical dominates

Wright Medical Group priced $675 million of five-year cash convertible notes prior to the market open on Thursday with a coupon of 1.625% and an initial conversion premium of 22.5%.

J. Wood Capital Advisors LLC was the placement agent for the private placement offering.

Holders of Wright Medical Group’s 2% cash convertible senior notes due 2020 entered into privately negotiated agreements to exchange $401 million of the 2% notes for $460 million of the 1.625% notes.

The company will deliver $1,146.10 for each $1,000 principal amount of the 2% notes in the exchange.

The new 1.625% notes were expanding in secondary market activity.

The notes were “bouncing all over the place” with outright trades as low as 100.38 and as high as 101.25 by mid-afternoon, a market source said.

Wright stock was down $1 during Thursday’s session before closing the day at $27.11, a decrease of 0.48%.

With more than $30 million of the bonds on the tape by mid-afternoon, Wright Medical’s new 1.625% notes were the most actively traded of the day.

Wright’s 2.25% notes due 2021 were also improved about 0.5 point dollar neutral, a market source said. The notes were trading between 135 to 138.75 on an outright basis.

Wright’s 2% notes were trading between 109.25 and 111.5 during Thursday’s session, according to Trace data.

Wix.com eyed

Wix.com plans to price $350 million of five-year convertible notes after the market close on Thursday with price talk for a coupon of 0% to 0.5% and an initial conversion premium of 30% to 35%, according to a market source.

The deal is being marketed with a credit spread of 225 bps over Libor and 40% vol., according to a market source.

The deal modeled about 0.75 point cheap at the midpoint of talk, the source said.

Like many of the recent deals from the tech sector, Wix.com is expected to do well, sources said.

Mentioned in this article:

Redwood Trust Inc. NYSE: RWT

QTS Realty Trust Inc. NYSE: QTS

Wix.com Ltd. Nasdaq: WIX

Wright Medical Group NV Nasdaq: WMGI

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