Morning Commentary: Marriott Vacations, Two Harbors convertible note offerings eyed

By Abigail W. Adams

Portland, Me., Jan. 27 – The convertibles primary market had two deals in the works on Wednesday as equity markets stood poised for a brutal session with equity benchmarks opening firmly in the red.

In a crossover trade, Marriott Vacations Worldwide Corp., a frequent flyer in the high-yield market, was making its debut convertible notes offering with a $500 million offering of five-year convertible notes.

Two Harbors Investment Corp. plans to price $250 million of five-year convertible notes after the market close.

While the deal looked cheap based on underwriters’ assumptions, it was heard to be wall-crossed.

Marriott’s debut

Marriott Vacations plans to price $500 million of five-year convertible notes after the market close on Wednesday with price talk for a coupon of 0% to 0.5% and an initial conversion premium of 32.5% to 37.5%, according to a market source.

Two Harbors wall-crossed

Two Harbors plans to price $250 million of five-year convertible notes after the market close on Wednesday with price talk for a coupon of 6% to 6.5% and an initial conversion premium of 17.5% to 22.5%, according to a market source.

The deal was heard to be marketed with assumptions of 600 basis points over Libor and a 20% vol., which looked 1.41 points cheap at the midpoint of talk, a source said.

However, the small offering was heard to be wall-crossed.

Proceeds from the offering will be used to repurchase the company’s 6.25% convertible notes due 2022.

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