Lucid convertibles on tap; Confluent, TechTarget eyed; Patrick Industries opens strong

By Abigail W. Adams

Portland, Me., Dec. 8 – The convertibles primary market proved the year was not yet over with one deal totaling $1.75 billion on tap for Thursday, two new deals totaling $1.36 billion slated to price after the market close and two deals totaling $362.5 million making their aftermarket debut.

Lucid Group Inc. plans to price $1.75 billion of five-year green convertible notes after the market close on Thursday with price talk for a coupon of 0.75% to 1.25% and an initial conversion premium of 50% to 55%, according to a market source.

BofA Securities Inc. and Citigroup Global Markets Inc. are bookrunners for the Rule 144A offering, which carries a greenshoe of $262.5 million.

Confluent Inc. plans to price $1 billion of five-year convertible notes and TechTarget, Inc. plans to price $360 million of five-year convertible notes after the market close on Wednesday.

The deals looked cheap to fair value with the terms from the software companies remaining aggressive, despite the recent volatility in the market.

Meanwhile, new paper from Patrick Industries Inc. hit the aftermarket and was putting in a strong performance out of the gate.

8x8 Inc. also priced a $137.5 million tap of its 0.5% convertible notes due 2024 at 100.779.

However, the 0.5% notes were not active in the secondary space following the add-on.

The flurry of new deal activity was a surprise to some sources given the recent volatility in equity markets.

“But that’s what happens when the market rises 3%,” a source said. “Everyone wants to price a convertible.”

While the new paper continued to dominate activity in the secondary space, Southwest Airlines Co.’s 1.25% convertibles due 2025 (Baa1/BBB) were also active although with little movement in price.

Confluent eyed

Confluent plans to price $1 billion 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 37.5% to 42.5%.

The deal was heard to be in the market with assumptions of 300 basis points over Libor and a 42% vol., a source said.

Using those assumptions, the deal looked 1.5 points cheap at the midpoint of talk, a source said.

The credit spread for the software company was aggressive with Confluent a high-multiple growth stock.

However, the deal is expected to do well with the company’s $18 billion market cap making it “a safer bet than not,” a source said.

TechTarget on tap

TechTarget plans to price $360 million of five-year convertible notes after the market close on Wednesday with price talk for a coupon of 0% to 0.25% and an initial conversion premium of 32.5% to 37.5%.

The deal was heard to be in the market with assumptions of 350 bps over Libor and a 40% vol., a source said.

The deal was the first in recent history to model rich to fair value. Using underwriters’ assumptions, the deal modeled just shy of par at the midpoint of talk.

However, proceeds from the offering will be used to repurchase or exchange for cash and shares a portion of the company’s 0.125% convertible notes due 2025 in privately negotiated transactions.

The exchange was driving the valuation for the new offering.

The deal was heard to be in demand during bookbuilding with books closing in the early afternoon.

Patrick Industries gains

Patrick Industries priced a $225 million offering of seven-year convertible senior notes after the market close on Tuesday at par with a coupon of 1.75% and an initial conversion premium of 30%.

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

The new paper was putting in a strong performance out of the gate. It traded up to 102.5 shortly after the opening bell. However, the notes came in as stock turned negative as the session progressed.

The notes were changing hands at 101.125 about one hour into the session.

They remained wrapped around 101 heading into the afternoon.

The convertibles expanded between 1 and 1.5 points on a dollar-neutral, or hedged, basis, a source said.

There was $90 million in reported volume at market close.

Patrick Industries’ stock traded to a high of $77.91 and a low of $75.72 before closing the day at $76.15, a decrease of 1.12%.

Southwest active

Southwest’s 1.25% convertible notes due 2025 remained active on Wednesday as stock attempted to bounce off its 52-week low.

The 1.25% notes were changing hands at 137 versus a stock price of $45.40 in the late afternoon.

There was $18 million in reported volume.

Southwest’s stock traded to a low of $44.56 and a high of $46.27 before closing the day at $45.27, an increase of 0.13%.

Southwest’s stock hit its 52-week low of $42.39 last week as concern over the Omicron variant of Covid-19 pressured travel stocks.

Mentioned in this article:

8x8 Inc. NYSE: EGHT

Confluent Inc. Nasdaq: CFLT

Lucid Group Inc. Nasdaq: LCID

Patrick Industries Inc. Nasdaq: PATK

Southwest Airlines Co. NYSE: LUV

TechTarget, Inc. Nasdaq: TTGT

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