In a fresh press release today, Wayfair (NYSE:W) disclosed its intention to proceed with a new convertible note offering. Certain details about the debt issuance aren’t known yet, but investors are evidently interpreting this as bearish, as they’re sending W stock lower.
Based in Boston, Wayfair provides an e-commerce platform offering furniture, décor and other home-centered products. Since these aren’t consumer necessities on the level of food and rent, Wayfair has had a tough time dealing with high inflation in 2022.
Wayfair’s investors didn’t react positively when the company announced that it plans to lay off 5% of its workforce. Some folks might think the the layoffs are a good thing, but apparently the market disagrees.
Now, Wayfair’s downtrodden investors have been hit with another development that’s not going over well. Reportedly, Wayfair intends to offer a whopping $600 million worth of convertible senior notes, due 2027.
What’s Happening With W Stock?
The response to this big-money debt issuance proposal was immediate. By 11:00 a.m. Eastern, W stock was down between 5% and 6%. Bear in mind, the shares had already fallen from $195 to around $50 in 2022 before Wayfair dropped this bombshell on its investors.
Just to clarify, convertible senior notes are basically a type of short- to medium-term debt that a company can issue, which will convert into equity (stock shares) at some point. It’s fine that Wayfair will receive a major capital infusion by issuing these senior notes. However, the company will have to pay it all back with interest.
And, this leads to the frustrating part. In the press release, Wayfair didn’t disclose the interest rate on these proposed senior notes — not even a ballpark figure. Here’s what Wayfair had to say about that:
“The final terms of the notes, including the initial conversion rate, interest rate and certain other terms, will be determined at the time of pricing.”
So, Wayfair’s investors will have to wait for an undetermined amount of time to get this information. The press release did specify, however, that Wayfair has already incurred debt in the form of issued senior notes, with due dates ranging from 2024 to 2026.
Clearly, today’s traders aren’t bullish on Wayfair’s intention to issue more debt. Thus, the bears are firmly in control of W stock today, just as they’ve been throughout the year so far.
On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
