DigitalOcean convertibles gain in active trade; Veritone’s planned deal models cheap

By Rebecca Melvin

Concord, N.H., Nov. 16 – DigitalOcean Inc.’s newly priced 0% convertibles due 2026 traded up on Tuesday after the cloud infrastructure provider priced an upsized $1.3 billion of senior notes with a 0% coupon and 50% initial conversion premium, according to market sources.

The new DigitalOcean notes were heard trading in the early going at 102 bid, 102.5 offered versus an underlying stock price of $119.01, which was the previous day’s close.

The new DigitalOcean paper continued to move up in heavy volume and alongside a share surge. The day’s top-traded convertible was seen changing hands at 105 at 1 p.m. ET when shares of the New York-based company were up to $127.18, a gain of about 7%. The stock kept moving up, closing the day up $11.25, or 9.5% at $130.26.

Initially the DigitalOcean convertibles deal was talked at $900 million in size.

Marathon Digital Holdings, Inc.’s newly priced 1% convertible senior notes due 2026 was the No. 2 traded bond on its first-day trading on Tuesday. The cryptocurrency company priced the upsized $650 million deal with an initial conversion premium of 37.5% late Monday.

The bonds traded at 101.86 when the stock was at $55.15. Later with the shares at $57.65, the new convertibles changed hands at 103.

Marathon’s shares were little changed on the day, closing at $55.37, which was down $0.03.

Also in the market on Tuesday was a new offering from Veritone Inc., a Denver-based enterprise AI platform. The company announced that it intends to sell $150 million of five-year convertible senior notes with a $22.5 million greenshoe.

The Veritone notes modeled cheap according to one valuation that put it worth 102.34 at the midpoint of price talk, or a 1.75% coupon and 30% initial conversion premium, using a credit spread of 600 basis points over Libor and a 40% vol., according to a market source.

The notes were expected to price on Wednesday. The company intends to use the proceeds from the offering to fund the capped call transactions, for general corporate purposes and for acquisitions and investments in complementary businesses, products, services and technologies.

The primary market activity represents a continuation of a busy Monday when four issuers launched new deals for a total of $4.1 billion in new paper.

One market source said that it was anticipated to be a busy week.

In addition to DigitalOcean and Marathon Digital, NCL Corp. Ltd., a subsidiary of Norwegian Cruise Line Holdings Ltd., is on tap with an $800 million offering and Unity Software Inc. also joined the calendar with a $1.5 billion debut convertible deal.

DigitalOcean climbs

DigitalOcean, the New York-based cloud infrastructure provider, saw its new convertible notes climb to 105 with the shares up about 7%.

The company priced an upsized $1.3 billion of convertible senior notes due Dec. 1, 2026 with a 0% coupon and a 50% initial conversion premium, according to a company news release.

The offering’s greenshoe was upsized to $200 million.

Initially the deal was talked as a $900 million base deal with a $135 million greenshoe.

Pricing was fixed at the rich end of 0% to 0.5% coupon talk and beyond the rich end of 40% to 45% talk for the initial conversion premium.

The notes are non-callable until Dec. 2, 2024, then will have a make-whole call subject to a 130% hurdle.

There is full dividend protection. There is also protection if there is a fundamental change, including change of control, dissolution or delisting.

J.P. Morgan Securities LLC, Goldman Sachs & Co. LLC and Morgan Stanley & Co. LLC are active bookrunners with JPMorgan managing the sale and handling billing and delivery.

About $350 million of proceeds from the offering will be used to repurchase common stock concurrently with the pricing of the notes. Remaining proceeds will be used for general corporate purposes, including working capital, operating expenses and capital expenditures. A portion may also be used for acquisitions, although there are no agreements in place at this time.

Marathon taps market

Las Vegas-based cryptocurrency company plans to use the proceeds of its new convertibles deal for general corporate purposes, including the acquisition of Bitcoin or Bitcoin mining machines. Its new bonds traded actively and were seen as high as 103 even though the underlying shares traded listlessly.

Veritone eyed

Veritone is seeking to tap the convertibles primary market with a $150 million offering of five-year notes. The deal was modeling cheap according to a valuation that put it worth 102.34 at the midpoint of price talk, or a 1.75% coupon and a 30% initial conversion premium, using a credit spread of 600 bps over Libor and a 40% vol.

The notes, which were expected to price on Wednesday, were being talked at a yield of 1.5% to 2% and an initial conversion premium of 27.5% to 32.5%, according to a market source.

BofA Securities Inc. and UBS Securities LLC are the bookrunners of the notes, which are non-callable for until Nov. 20, 2024 and are subsequently callable at a 130% price hurdle, which is to be in effect for at least 20 trading days out of 30 consecutive trading days.

Upon conversion, the notes may be settled in cash, the company’s common stock, or a combination of cash and the company’s common stock, at the company’s election.

In connection with the pricing of the notes, the company expects to enter into capped call transactions with one or more of the initial purchasers of the notes or their affiliates.

Establishing the initial hedges of the capped call transactions concurrently with the pricing of the notes may increase or reduce the size of any decrease in the market price of the company’s common stock. Unwinding of any hedge positions prior to maturity of the convertibles could also cause an increase or a decrease in the market price of the company’s common stock.

Mentioned in this article:

DigitalOcean, Inc. NYSE: DOCN

Marathon Digital Holdings, Inc. Nasdaq: MARA

Norwegian Cruise Line Holdings Ltd. NYSE: NCLH

Unity Software Inc. Nasdaq: U

Veritone Inc. Nasdaq: VERI

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.