Morning Commentary: Fiverr International convertible notes offering eyed, looks cheap

By Abigail W. Adams

Portland, Me., Oct. 7 – The convertibles primary market returned to action on Wednesday after a more than week-long hiatus.

Fiverr International Ltd. is poised to be the first new deal of the fourth quarter, and the offering looked cheap, sources said.

Fiverr plans to price $400 million of five-year convertible notes after the market close on Wednesday with price talk for a fixed coupon of 0% and an initial conversion premium of 25% to 30%.

Underwriters were marketing the deal with assumptions of 375 basis points over Libor and a 42% vol., a source said.

Using those assumptions, the deal looked 5.4 points cheap at the midpoint of talk, a source said.

However, the borrow on the stock is “squishy,” at best, a source said. While the borrow rate is not the best, it is also not the worst.

Assuming the worst borrow rate, another source saw the deal as 5 points cheap at the midpoint of talk.

With a 0% coupon, the deal is an equity surrogate that will appeal mostly to hedge accounts and equity focused outright accounts.

The Israeli-based online platform for freelance services was listed on the New York Stock Exchange in June 2019 with an IPO of $20.00.

Stock has since “taken off like a rocket,” a source said.

With the recent shortage of new paper and the deal looking cheap, it is expected to do well.

Meanwhile, trading volume in the secondary space was light early in the session as equity markets surged after president Donald Trump reversed his previous stance on ending stimulus talks, supporting a more targeted approach.

There was about $45 million in reported volume one hour into the session with few names seeing concentrated trading activity, a source said.

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