Gogo on tap; Great Ajax add-on prices; Wayfair convertibles contract on debut; KBR eyed

By Abigail W. Adams

Portland, Me., Nov. 15 – Equity markets saw a volatile session on Thursday with the Dow Jones industrial average opening the day down 261 points but fighting back to close the day up 208.77 points.

While the Dow closed in the green for the first time this week, the downturn in equities and the downfall of crude oil futures have taken their toll.

The spill-over into credits has begun, sources said.

The market in general was down 0.25 point dollar-neutral with some wider credit names seeing an even greater contraction, a market source said.

The biotech space was seen down 0.5 point to 0.75 point dollar-neutral.

“The credit spread for single Bs is almost 400 [basis points] over,” a market source said. “Things had to be adjusted.”

Despite the market condition, the primary market continued to squeak out new deals.

Gogo Inc. plans to price $200 million of four-year convertible notes after the market close on Friday with price talk for a coupon of 5.5% to 6% and an initial conversion premium of 20% to 25%, according to a market source.

J.P. Morgan Securities LLC and Morgan Stanley & Co. LLC are bookrunners for the Rule 144A deal, which carries a greenshoe of $30 million.

Proceeds will be used to repurchase $200 million of the principal amount of the company’s 3.75% convertible notes due 2020.

Great Ajax Corp. priced a $15.85 million tap of its $25-par 7.25% convertible notes due 2024 at 98.8% of par, or $24.69, and an initial conversion premium of 16.3%.

Wayfair Inc. sold $500 million of six-year convertible notes prior to the market open on Thursday. The new paper was volatile in high-volume activity in the secondary space but was contracted dollar-neutral.

KBR Inc.’s newly priced 2.5% convertible notes due 2023 improved outright but contracted dollar-neutral in active trading on Thursday.

Outside of new deal activity, Western Digital Corp.’s 1.5% convertible notes due 2024 were again volume movers in the secondary space, as they have been for most of the week.

Great Ajax prices

Great Ajax priced a $15.85 million tap of its $25-par 7.25% convertible notes due 2024 at 98.8% of par, or $24.69, and an initial conversion premium of 16.3%.

Pricing came toward the cheap end of talk for a discounted issue price of 1% to 1.25% of par, according to a market source.

The add-on lifts the total outstanding amount of the 7.25% convertible notes to $123.85 million.

Great Ajax initially priced $87.5 million of the $25-par 7.25% convertible notes in April 2017 at par and priced a $20.5 million add-on at a reoffer price of $25.70 in August 2017.

While the add-on pushed the notes down from their previous levels, they were trading above their issue price in light volume on Thursday.

The 7.25% notes stood poised to close the day at $24.92. They closed Wednesday at $25.16.

Wayfair hits the market

Wayfair sold $500 million of six-year convertible notes prior to the market open on Thursday at the cheap end of talk with a coupon of 1.125% and an initial conversion premium of 32.5%.

Price talk had been for a coupon of 0.625% to 1.125% and an initial conversion premium of 32.5% to 37.5%, according to a market source.

The new 1.125% convertible notes, which priced at par, opened well below par in the secondary space causing many to question whether the deal had been offered at a discount.

Initial trades were as low as 98.75, a market source said. The notes continued to trade between 98.75 to 99 early in the session.

The notes rallied alongside stock as the session progressed. They were seen at 100.125 bid, 100.625 offered in the mid-afternoon.

However, the notes were contracted 0.25 point dollar-neutral and were expected to contract more by markets close.

Wayfair stock traded as low as $85.41 and as high as $90.42 before closing the day at $88.92, an increase of 1.22%.

“It’s a tough credit with such a tiny coupon,” a market source said.

Given market conditions, it was also a difficult time to price such a large deal.

KBR contracts

KBR’s 2.5% convertible notes due 2023 were again active in the secondary space. While improved on an outright basis, the notes were contracted dollar-neutral.

The notes traded just north of 99 on Thursday after closing Wednesday at 98.25.

They were contracted about 0.25 point dollar-neutral on Thursday, a market source said.

KBR stock closed Thursday at $19.865, an increase of 3.46%.

While the 2.5% notes saw a slight expansion on a dollar-neutral basis on their secondary market debut on Tuesday, they have traded below par on an outright basis since hitting the market.

Western Digital active

Western Digital’s 1.5% convertible notes due 2024 again saw high-volume activity during Thursday’s session.

The notes traded down about 0.5 point on an outright basis to close the day at 84.

Western Digital stock closed Thursday at $46.30, an increase of 2.77%.

While the $1.1 billion issuance was hard to find earlier in the year, it has been for sale in recent weeks.

The convertible notes were dropped from the Thomson Reuters convertibles indices at the market close on Wednesday, which was partly responsible for the uptick in activity, a market source said.

Mentioned in this article:

Gogo Inc. Nasdaq: GOGO

Great Ajax Corp. NYSE: AJX

KBR Inc. NYSE: KBR

Wayfair Inc. NYSE: W

Western Digital Corp. Nasdaq: WDC

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.