Morning Commentary: Cloudflare, Avalara convertibles hit aftermarket, trade below par

By Abigail W. Adams

Portland, Me., Aug. 11 – New convertibles paper was in focus on Wednesday with almost $2 billion flooding the secondary space after an extended period of muted new deal activity.

Cloudflare Inc. priced an upsized $1.125 billion of five-year convertible notes and Avalara Inc. priced $850 million of five-year convertible notes after the market close on Tuesday.

The new paper was struggling in the aftermarket with both deals falling below par on an outright basis on a weak day for the tech sector.

Cloudflare below par

Cloudflare priced an upsized $1.125 billion of five-year convertible notes after the market close on Tuesday at the rich end of talk with a coupon of 0% and an initial conversion premium of 52.5%.

Price talk was 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 greenshoe was also upsized to $168.75 million.

The initial size of the offering was $1 billion with a greenshoe of $150 million.

The new paper was struggling on an outright basis.

The notes opened at 99.5 with the majority of trades between 99.125 and 99.625 early in the session.

While the notes were down outright, they expanded upwards of 0.125 to 0.25 on a dollar-neutral basis.

The new paper hit the secondary space on a weak day for the company’s stock.

Cloudflare’s stock was changing hands at $121.97, a decrease of 2.8%, shortly before 11 a.m. ET.

Concurrently with the new offering, the company entered into privately negotiated transactions with holders of its 0.75% convertible notes due 2025 to exchange $400 million in the principal amount for $400.7 million in cash and 7.6 million shares.

Avalara flat

Avalara priced $850 million of five-year convertible notes after the market close on Tuesday at par with a coupon of 0.25% and an initial conversion premium of 47.5%.

Pricing came at the midpoint of talk for a coupon of 0% to 0.5% and at the rich end of talk for an initial conversion premium of 42.5% to 47.5%, according to a market source.

While volume in the name was light, the new paper was also struggling on an outright basis early in the session.

Avalara’s 0.25% notes were changing hands between 99.625 and 99.75 out of the gate.

The notes popped above par about one hour into the session and were marked at 100 bid, 100.5 offered.

The notes were flat on a dollar-neutral basis, a source said.

While stock was largely flat early in the session, it dropped as the sell-off in tech names accelerated shortly before 11 a.m. ET.

Avalara’s stock was changing hands at $159.18, a decrease of 1.56%, shortly before 11 am. ET.

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