Morning Commentary: Market eyes DocuSign; International Flavors accelerates timing

By Abigail W. Adams

Portland, Me., Sept. 12 – Market players were eyeing the two convertible deals totaling $1.15 billion in the pipeline on Wednesday with one deal set to hit the secondary space earlier than anticipated.

International Flavors & Fragrances Inc. has accelerated the timing on its $750 million offering of three-year equity units, which is now expected to price after the market close on Wednesday, market sources said.

The deal was initially set to price after the market close on Thursday.

Price talk for the $50-par tangible equity units is 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 from the investment-grade corporation had a positive reception during bookbuilding with strong demand from outright and hedge accounts, a market source said.

DocuSign, Inc. plans to price $400 million of five-year convertible notes after the market close on Thursday with price talk for a coupon of 0.5% to 1% and an initial conversion premium of 30% to 35%, according to a market source.

Underwriters are marketing the deal with a credit spread of 225 basis points over Libor and a 40% vol., according to a market source. Using those assumptions, the deal models about 3.5 points cheap.

However, some sources questioned the credit spread.

One source pegged the credit spread at 425 bps over Libor. While founded in 2003, DocuSign’s IPO was just in April.

With numbers that have been public for only a couple months, there is little credit history to draw from.

“It makes it hard to not have firm numbers,” a market source said.

Using a credit spread of 425 bps over Libor and a 45% vol., the deal models about 0.5 point cheap, a source said.

While only public for a short time, the books do look good, sources said. DocuSign does have $800 million in cash on the balance sheet and no debt, making the 225 bps credit spread reasonable, one source said.

Electronic signature technology is also becoming much more widespread, a market source said.

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