Market eyes DocuSign; International Flavors accelerates timing; Western Digital sinks

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 heard to be 3x oversubscribed during bookbuilding.

DocuSign, Inc.’s $400 million offering of five-year convertible notes modeled cheap.

However, the company is new to the convertibles universe, and sources questioned the credit spread given its recent IPO.

Meanwhile, Western Digital Corp.’s 1.5% convertible notes due 2024 were volume leaders on Wednesday with the notes trading at their lowest point since pricing.

Ctrip.com International Ltd.’s 1.25% convertible notes due Oct. 15, 2018 remained active on Wednesday with the notes trading down to par as they approach their maturity.

IFF accelerated

International Flavors & Fragrances plans to price its $750 million offering of three-year equity units after the market close on Wednesday.

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 had a positive reception during bookbuilding with strong demand from outright and hedge accounts, a market source said.

The books were up to 3x oversubscribed, another source said. Sources pegged the deal fair value.

However, the company is an investment-grade corporation from a sector that does not often tap the convertibles space.

“There’s not a lot of exposure to the sector,” a source said.

The new mandatory paper is also in demand given the amount of mandatory paper maturing in 2018.

The amount leaving the space is almost double the amount coming in, a source said.

The equity units are pricing concurrently to a $1.5 billion common stock offering, which is a good indication the stock will appreciate, a market source said.

Getting to know DocuSign

DocuSign 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%.

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.

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 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 other sources agreed the credit spread should be wider, some felt the assumption was fair.

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.

DocuSign is a first-time issuer of convertible notes, and it will take some time for people to get to know the company’s story, a source said.

DocuSign stock has more than doubled since its April IPO of $38.00 per share. The stock closed Wednesday at $57.18, an increase of 5.97%.

Concurrent to the convertible notes offering, DocuSign will price an offering of 8,060,550 shares of common stock.

Western Digital’s new low

Western Digital’s 1.5% convertible note due 2024 were volume leaders on Wednesday with the notes trading down as stock hit a new 52-week low in intraday trading.

The 1.5% notes were trading around 92.5 on Wednesday, a market source said.

Western Digital stock traded to a low of $53.61 and a high of $57.67 before closing the day at $56.57, an increase of 2.89%.

Western Digital stock’s 52-week low was previously $54.12, which it hit during Tuesday’s session.

Stock traded down on Tuesday after an RBC downgrade to perform from outperform and a price target reduction to $70 from $95.

With the conversion premium on the notes now over 100%, they are no longer moving in relation to stock, a market source said.

The notes are now well below par and are trading for their yield. The yield on the notes is about 3%.

Western Digital’s stock was $87.08 when the 1.5% notes priced in January.

Ctrip.com’s final days

Ctrip.com’s 1.25% convertible notes due Oct. 15, 2018 continued to see active trading as they enter their final days in the secondary space.

The 1.25% convertible notes were seen trading at 100.4 early in the session but closed the day at par.

The notes are “pretty far out of the money,” a market source said.

With no conversion value, holders will most likely put the notes at par upon their maturity, the source said.

Mentioned in this article:

Ctrip.com International Ltd. Nasdaq: CTRP

DocuSign, Inc. Nasdaq: DOCU

International Flavors & Fragrances Inc. NYSE: IFF

Western Digital Corp. Nasdaq: WDC

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