Morning Commentary: Live Nation convertible offering eyed; Luckin Coffee notes active

By Abigail W. Adams

Portland, Me., Jan. 29 – The convertible primary market returned to action on Wednesday with one new deal on deck.

Live Nation Entertainment Inc. plans to price $350 million five-year convertible notes after the market close on Wednesday with price talk for a coupon of 1.875% to 2.375% and an initial conversion premium of 47.5% to 52.5%, according to a market source.

The deal was being marketed with assumptions of 275 basis points over Libor and a 28% vol., according to a market source.

At 50 bps, the borrow is in good condition, sources said.

Using those assumptions, the fair value of the deal modeled out to about 100.65 at the midpoint of talk, a source said.

However, the credit spread seemed conservative.

Using assumptions of a credit spread of 200 bps over Libor and a 30% vol., the deal modeled out to about 104 at the midpoint of talk, the source said.

Live Nation is a single B credit. However, its junk bonds trade tight, the source said.

The premium on the notes is “ridiculous,” a source said. Live Nation has two outstanding convertible notes and there are much cheaper ways to play the name, the source said.

While the premium is hefty, “that’s what you get in this low rate environment,” another source said.

Meanwhile, the secondary space saw another slow start to the day with $55 million in reported volume about one hour into the session.

Luckin Coffee Inc.’s 0.75% convertible notes due 2025 were again in focus with more than $9 million in reported volume about one hour into the session.

While the notes topped par in pre-market activity, they were again below par with the company’s ADS under pressure soon after the opening bell.

The 0.75% notes were changing hands at 97.75 early in the session, a market source said.

Luckin’s ADS traded to a low of $37.91 shortly after the opening bell. They were changing hands at $38.09, a decrease of 3.84%, shortly before 11 a.m. ET.

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