Morning Commentary: Avalara, Cloudflare convertible note offerings eyed

By Abigail W. Adams

Portland, Me., Aug. 10 – The convertibles primary market returned to action in full force with two large offerings set to price after the market close.

Cloudflare Inc. plans to price $1 billion of five-year convertible notes and Avalara Inc. plans to sell $850 million of five-year convertible notes after the market close on Tuesday.

While the terms for the deals were aggressive, they still modeled cheap based on underwriters’ assumptions, sources said.

Cloudflare in focus

Cloudflare plans to price $1 billion of five-year convertible notes after the market close on Tuesday with price talk for a coupon of 0% to 0.5% and an initial conversion premium of 47.5% to 52.5%, according to a market source.

The deal was heard to be in the market with assumptions of 250 basis points over Libor and a 42% vol., according to a market source.

Using those assumptions, the deal looked 1.625 points cheap at the midpoint of talk.

Proceeds will be used, in part, to exchange up to $400 million of the principal amount of the company’s 0.75% convertible notes due 2025 for cash and stock.

The 0.75% convertible notes are deep-in-the-money and trade at triple par.

The web infrastructure and website security company’s stock has been trending upward since May and set a new 52-week high of $127.70 early in Tuesday’s session.

Avalara on tap

Avalara plans to price $850 million of five-year convertible notes after the market close on Tuesday with price talk for a coupon of 0% to 0.5% and an initial conversion premium of 42.5% to 47.5%, according to a market source.

The deal was heard to be in the market with assumptions of 250 bps over Libor and a 39% vol., according to a market source.

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

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