Morning Commentary: Twilio, Vocera Communications to price convertible notes offerings

By Abigail W. Adams

Portland, Me., May 14 – The convertibles primary market launched the week with two new convertible notes offerings totaling $560 million.

Twilio Inc. plans to price $435 million of five-year convertible notes after the market close on Monday with price talk for a coupon of 0% to 0.5% and an initial conversion premium of 30% to 35%, according to a market source.

The deal is being marketed with a credit spread of 225 basis points and a 40% vol. Using those assumptions, the deal models 1 point to 1.5 points cheap, a market source said.

The credit assumption is tight, a market source said. “I think they’re being aggressive” with the credit, the source said.

With a credit spread of 375 bps over 45% vol., the deal models out to fair value, the source said.

However, “the universe loves companies like Twilio,” and even at fair value the convertible bonds will most likely trade up, the source said.

Twilio stock has spiked in the past year, which may be a deterrent for outright buyers, but “it would be a great put” for hedge guys, a market source said.

There are rumors that Salesforce is eyeing Twilio for acquisition, which resurfaced as recently as last week.

Salesforce revealed that it owns 888,517 shares of Twilio in February, which is now a $47.6 million investment.

Twilio is a San Francisco-based cloud communications platform service company.

Vocera Communications Inc. plans to price $125 million of five-year convertible notes after the market close on Monday with price talk for a coupon of 1.25% to 1.75% and an initial conversion premium of 30% to 35%, according to a market source.

The deal is being marketed with a credit spread of 325 bps and a 35% vol., a market source said. With those assumptions, the deal models a little over 1 point cheap.

The deal looks good, a market source said. “It’s got good vol., good credit metrics, good borrow, good industry. It’s got all the fixings,” the source said.

Vocera is a San Jose, Calif.-based communications solutions provider for mobile workers in a variety of industries.

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