MongoDB on tap; Luckin Coffee looks cheap; JPMorgan exchangeables eyed; Transocean drops

By Abigail W. Adams

Portland, Me., Jan. 8 – After an extended holiday break, the convertibles primary market returned to action with one deal set to price after the market close on Wednesday and two more on tap for after the market close on Thursday.

MongoDB Inc. plans to price $750 million of six-year convertible notes after the market close on Thursday with price talk for a coupon of 0% to 0.5% and an initial conversion premium of 37.5% to 42.5%, according to a market source.

Morgan Stanley & Co. LLC is lead left bookrunner on the Rule 144A offering, which carries a greenshoe of $112.5 million.

J.P. Morgan Chase Bank, NA plans to price $500 million three-year cash-settled bonds exchangeable for Alibaba Group Holding Ltd. shares after the market close on Wednesday.

The deal looked rich. However, it was catering to accounts that could not purchase Alibaba stock but wanted to play the name, source said.

Luckin Coffee Inc. plans to price $400 million of five-year convertible notes after the market close on Thursday.

The deal looked cheap and is expected to do well, sources said.

Meanwhile, the secondary space saw another active day with $139 million in reported volume less than one hour into Wednesday’s session and $520 million in reported volume in the late afternoon.

While active, there was a wide dispersion to the trading activity with accounts making room for new paper and cleaning up their portfolios, a market source said.

Apellis Pharmaceuticals Inc.’s 3.5% convertible notes due 2026 remained in focus with the notes continuing to improve after a massive expansion during Tuesday’s session.

Transocean Ltd.’s 0.5% convertible notes due 2023 saw renewed attention in the secondary space with the notes again sinking below par after only recently trading above.

JPMorgan eyed.

JPMorgan’s offering of $500 million three-year cash-settled bonds exchangeable for Alibaba shares looked rich and had minimal upside potential, sources said.

However, the deal offers accounts unable to purchase Alibaba stock due to their charter an opportunity to play the name, a source said.

Price talk for the exchangeable bonds is for a fixed coupon of 0.125%, a fixed exchange premium of 20% and an offer price of 109.5, according to a market source.

The deal was heard to be in the market with a credit spread of 25 basis points over Libor and a 31% vol.

Using those assumptions, the fair value of the deal modeled out to 107.22, according to a market source.

With an offer price of 109.5, the deal appeared to be rich, the source said.

With JPMorgan the credit behind the deal and the tenor on the bonds three years, the credit spread of 25 bps made sense, another source said.

However, the 31% vol. for Alibaba stock seemed aggressive, the source said, and placed the vol. more at 23%.

With a vol. of 23%, the deal seemed even richer, the source said.

While JPMorgan’s credit and the short maturity of the notes gave it downside protection, the upside seemed “arithmetically muted,” with the low yield and high premium, another source said.

However, Alibaba stock could easily be poised for a breakout.

Luckin looks cheap

Luckin Coffee plans to price $400 million of five-year convertible notes after the market close on Thursday with price talk for a coupon of 0.5% to 1% and an initial conversion premium of 27.5% to 32.5%, according to a market source.

The deal was heard to be in the market with assumptions of 600 bps over Libor and a 45% vol.

Using those assumptions, the deal looked to be about 5.125 points cheap at the midpoint of talk, a market source said.

The 600 bps credit spread may be a little aggressive for a Beijing-based company; however, the deal was priced cheaply enough to compensate for that, a source said.

Using an extremely conservative credit spread of 900 bps over Libor, the deal still looked slightly cheap at the midpoint of talk, the source said.

The deal is pricing concurrently with a 12 million secondary offering of American Depositary Shares, which will help significantly with the borrow, a source said.

Sources were in agreement – the deal looked attractive and is expected to do well.

Sources predicted there would be an uptick in convertible notes offerings from China-based companies in 2020 if trade war tensions eased – an amplification of a trend seen in 2019.

With one of the first convertible notes offering of the year from a Beijing-based company, those predictions may come true.

Apellis improves

After a massive expansion during Tuesday’s session, Apellis Pharmaceuticals’ 3.5% convertible notes due 2026 continued to improve.

The notes remained in focus during Wednesday’s session with more than $22 million in reported volume by the late afternoon.

They were seen changing hands at 128 versus an equity price of $38.55 in the mid-afternoon. The notes were up again on a dollar-neutral basis after expanding up to 7.5 points dollar-neutral on Tuesday.

Apellis stock closed Wednesday at $39.14, an increase of 1.06%.

Stock surged more than 20% on Tuesday following positive clinical results.

Transocean below par

Transocean’s 0.5% convertible notes due 2023 dropped back below par in active trading on Wednesday after only recently trading above par.

The 0.5% notes sank almost 3 points outright. They were changing hands at 98.125 versus an equity price of $6.41 in the mid-afternoon.

While down outright, the notes were moving in line on a dollar-neutral basis, a market source said.

The notes saw more than $18 million in reported volume making it one of the most actively traded issues in the secondary space.

Transocean stock closed Wednesday at $6.42, a decrease of 6.82%.

The offshore drilling contractor’s 0.5% notes have largely languished below par since June 2019, trading as low as the mid-70s in October, according to Trace data.

However, the notes have slowly recovered alongside crude oil futures and opened the new year above par.

The notes sank alongside crude oil futures on Wednesday as tensions between the United States and Iran tempered.

WTI crude oil futures settled at $59.98, a decrease of $2.72 or 4.34%, and Brent crude futures settled at $65.83, a decrease of $2.44 or 3.57%.

Transocean also tapped the high-yield market on Wednesday and priced a $750 million issue of 8% seven-year senior priority guaranteed unsecured notes (existing ratings Caa1/B-).

Mentioned in this article:

Alibaba Group Holding Ltd. NYSE: BABA

Apellis Pharmaceuticals Inc. Nasdaq: APLS

Luckin Coffee Inc. Nasdaq: LK

MongoDB Inc. Nasdaq: MDB

Transocean Ltd. NYSE: RIG

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