Morning Commentary: Twitter’s planned $1.3 billion deal in focus; tranches looks about fair value

By Rebecca Melvin

New York, Sept. 11 – Market players were sizing up Twitter Inc.’s $1.3 billion convertibles offering early Thursday ahead of pricing seen after the market close.

The two Twitter tranches for $650 million each of five-year and seven-year paper looked about fair value at the midpoint of talk, using about 200 basis points to 250 bps over Libor and a 40% vol., an East Coast-based buysider said.

Others might go tighter on the credit spread, the buysider said.

Given the solid reputation of the underwriters and the fact that investors are going to get involved not because the deal is cheap but because it’s a growth story and a high vol. stock, the deal should be pretty fairly valued, he said. “Hopefully it’s not too tight.”

“Generically speaking, this is exactly the type of company that should come to the convertibles market. It’s volatile, it’s a growth story with the likelihood of high cash flow down the road. So it’s good for investors and it’s good for the company,” the buysider said.

Ahead of the deal, there was some weakness in the secondary market. But that was due to a combination of factors and not only to the size of the new deal, sources said.

“It’s not big enough to force selling. I bet people expected like a $4 billion issue,” a New York-based trader said.

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