Morning Commentary: Wayfair on tap; Welltower, TransMedics, Granite hit aftermarket

By Abigail W. Adams

Portland, Me., May 9 – The convertibles primary and secondary markets were hopping on Tuesday with one new offering set to price after the market close and $1.625 billion in new supply making its aftermarket debut.

Serial issuer Wayfair Inc. plans to price $600 million of five-year convertible notes after the market close on Tuesday in a refinancing of its near-term maturities.

The refinancing deal looked attractive based on underwriters’ assumptions, but the real value will be in the buyback of its outstanding notes.

Meanwhile, the secondary space was flooded with new paper from Granite Construction Inc., TransMedics Group Inc. and Welltower Inc.

The deals were in hot demand during book building with TransMedics’ and Welltower’s offerings significantly upsized and Granite Construction’s overnight refinancing deal spoken for prior to launching.

While TransMedics’ and Granite Construction’s new notes made large gains on debut, Welltower’s new notes, the latest investment-grade paper to hit the market, fell largely flat.

Wayfair eyed

Wayfair plans to price $600 million of five-year convertible notes after the market close on Tuesday with price talk for a coupon of 3.25% to 3.75% and an initial conversion premium of 22.5% to 27.5%.

The deal was heard to be in the market with assumptions of a 925 basis points over SOFR and a 45% vol.

Using those assumptions, the deal looked about 3 points cheap at the midpoint of talk, a source said.

While Wayfair’s stock has a “massive” short-interest, the borrow was OK, a source said.

The offering is coming as a refinancing with proceeds to be used to repurchase for cash a portion of its 1.125% convertible notes due Nov. 1, 2024, 0.625% convertible notes due 2025 and 1% convertible notes due 2026 in privately negotiated transactions.

The new offering sparked activity in the outstanding notes.

Wayfair’s soon-to-mature 1.125% convertible notes due Nov. 1, 2024 were unchanged in early activity with the notes trading around 91.5.

However, the 1% convertible notes of 2026 improved outright with the notes gaining 1.5 points to trade at 70.

Wayfair’s stock was changing hands at $38.76, a decrease of 3.03%, shortly before 11 a.m. ET.

Granite Construction gains

Granite Construction priced $325 million of five-year convertible notes after the market close on Monday at par with a coupon of 3.75% and an initial conversion premium of 30%.

Pricing was in line with talk for a fixed coupon of 3.75% and a fixed initial conversion premium of 30%, according to a market source.

The overnight refinancing deal priced shortly after launching with the offering pre-sold largely to holders of the company’s 2.75% convertible notes due Nov. 1, 2024 that participated in the exchange.

Granite Construction entered into privately negotiated transactions to exchange $198.7 million in principal of the 2.75% notes for $198.8 million in cash and 1.39 million shares.

The deal was a “fantastic liability management exercise for the company,” a source said.

The new paper was quiet early in the session with only a few outright trades on the tape.

However, the notes were performing well.

They traded up to 102 early in the session, a source said.

Granite Construction’s stock was seen at $35.70, an increase of 0.56%, shortly before 11 a.m. ET.

TransMedics in demand

In a deal that was described as a ‘blowout,’ TransMedics priced an upsized $400 million of five-year convertible notes after the market close on Monday at par with a coupon of 1.5% and an initial conversion premium of 32.5%.

Pricing came richer than talk for a coupon of 1.75% to 2.25% and at the rich end of talk for an initial conversion premium of 27.5% to 32.5%.

The greenshoe was also upsized to $60 million.

The initial size of the offering was $300 million with a greenshoe of $45 million.

“Everyone liked this one,” a source said. “It had the vol.”

The strong demand seen during book building carried over to the secondary space with the notes making large outright and dollar-neutral gains on debut.

The 1.5% notes traded as high as 103.375 out of the gate, but the majority of trades were in the 102 to 102.5 context, a source said.

They expanded 1.5 points dollar-neutral.

TransMedics’ stock was trading at $73.50, an increase of 3.61%, shortly before 11 a.m. ET.

Welltower flat

Welltower OP LLC priced an upsized $900 million of five-year notes (Baa1) exchangeable for Welltower Inc. common shares after the market close on Monday at par with a coupon of 2.75% and an initial exchange premium of 25%.

Pricing came at the cheap end of talk for a coupon of 2.25% to 2.75% and at the midpoint of talk for an initial exchange premium of 22.5% to 27.5%, according to a market source.

The initial size of the offering was $750 million with a greenshoe of $112.5 million.

The deal was marketed with assumptions of a 175 bps over SOFR and a 26% vol.

While the deal played to solid demand during book building, there were questions about the 26% vol. assumptions used by underwriters, which seemed aggressive, a source said.

The new paper was initially bid up in the gray market, but the initial exuberance wore off with the notes largely flat in the aftermarket.

They were changing hands in the 100.25 to 100.5 context in early trade with the notes moving in line with stock.

Welltower’s stock was seen at $77.41, an increase of 1.5%, shortly before 11 a.m. ET.

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