Morning Commentary: Dropbox’s convertibles offered in two parts early focus of market

By Abigail W. Adams

Portland, Me., Feb. 23 – The convertibles primary market had one large offering from a tech company on deck on Tuesday, despite the continued sell-off in the sector.

Dropbox Inc. plans to price $1.135 billion convertible notes in five- and seven-year tranches, according to a market source.

The deal consists of a $567.5 million tranche of five-year convertible notes with price talk for a fixed coupon of 0% and an initial conversion premium of 55% to 60%.

The deal also consists of a $567.5 million tranche of seven-year convertible notes with price talk for a coupon of 0% to 0.5% and an initial conversion premium of 47.5% to 52.5%.

The five-year notes were being marketed with assumptions of 200 basis points over Libor and a 42% vol., according to a market source.

Using those assumptions, the deal looked 1.04 points cheap at the midpoint of talk.

The seven-year notes were being marketed with assumptions of 225 bps over Libor and a 40% vol., which modeled out to fair value at the midpoint of talk, a source said.

The deal comes as the sell-off in equities continued ahead of Federal Reserve chairman Jerome Powell’s testimony to Congress.

While equities were paring their losses as the session progressed, the Nasdaq was down another 1.19% shortly before 11 a.m. ET after closing the previous session down 2.46%.

However, Dropbox’s stock was up on the day with stock changing hands at $22.93, an increase of 1.91%, shortly before 11 a.m. ET.

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