Cardlytics, Marcus convertibles eyed; Shopify, Medallia, Illumina gain dollar-neutral

By Abigail W. Adams

Portland, Me., Sept. 17 – The convertibles primary market continued to roll out new deals on Thursday with two small offerings on deck.

Cardlytics Inc. plans to price $200 million of five-year convertible notes and the Marcus Corp. plans to price $87 million of five-year convertible notes after the market close on Thursday.

Both offerings looked cheap, sources said.

However, with Cardlytics being a young company, the deal was difficult to value.

Meanwhile, there “was some carnage” in the market as equities sold off in the wake of the Federal Reserve’s announcement, sources said.

While outright accounts were feeling some pain, several names were improved dollar-neutral.

Shopify Inc.’s 0.125% convertible notes due 2025 and Medallia Inc.’s 0.125% convertible notes due 2025 were down outright but continued to push out dollar-neutral their second day in the secondary space.

Illumina Inc.’s convertible notes were improved dollar-neutral in heavy volume as stock continued to sell off in the run up to a planned acquisition.

Cardlytics on deck

Cardlytics plans to price $200 million of five-year convertible notes after the market close on Thursday with price talk for a coupon of 0.75% to 1.25% and an initial conversion premium of 27.5% to 32.5%, according to a market source.

While it was unclear what underwriters were using, one source pegged assumptions as 700 basis points over Libor and a 45% vol.

Using those assumptions, the deal looked almost 2 points cheap at the midpoint of talk, the source said.

However, the assumptions were “extremely conservative,” with most software companies allotted a credit spread of 350 bps over Libor or under, a source said.

The advertising platform that partners with financial institutions to run their banking rewards program has only been around for one to two years, the source said.

Given the relative youth of the company, determining its true credit spread was difficult.

Another source pegged the credit spared as 640 bps over Libor, which increased the cheapness of the deal to 3 points at the midpoint of talk.

However, there is a large amount of short interest in the stock, which may make the borrow difficult, the source said.

Marcus looks cheap

Marcus plans to price $87 million of five-year convertible notes after the market close on Thursday with price talk for a coupon of 5% to 5.5% and an initial conversion premium of 20% to 25%, according to a market source.

Underwriters were marketing the deal with assumptions of 1,300 bps over Libor and a 40% vol.

With a 1% borrow, the deal looked 8.25 points cheap at the midpoint of talk, a source said.

While the deal looked cheap, it is not expected to have a wide audience or trade much in the secondary due to its small size.

Stock got crushed on the heels of the convertible notes offering, closing the day at $8.99, a decrease of 34.09%.

Day two

Shopify’s and Medallia’s convertible notes continued to improve dollar-neutral their second day in the secondary space even as they dropped outright as stock sold off.

Shopify’s 0.125% convertible notes due 2025 were down about 1.75 points outright with stock off 3% in intraday activity.

They were changing hands around 105 on Thursday and gained another 0.5 points dollar-neutral.

Shopify stock traded to a high of $874.66 and a low of $839.40 before closing the day at $870.76, a decrease of 1.63%.

The notes skyrocketed on their market debut and expanded upwards of 6 points dollar-neutral.

The deal from the Ottawa-based e-commerce company was registered and the company has a huge market cap and a loyal following, which has helped the performance of the notes, a source said.

Medallia’s 0.125% convertible notes due 2025 dropped about 2 points outright with stock down more than 3%.

The notes were changing hands at 100.25 in the late afternoon.

However, they gained another 0.25 point dollar-neutral, a source said.

Medallia stock traded to a high of $27.10 and a low of $26.34 before closing the day at $26.72, a decrease of 2.66%.

The notes also performed well on their secondary market debut on Wednesday and expanded 3.5 points dollar-neutral.

Illumina active

Illumina’s convertible notes were in focus on Thursday with both tranches improving dollar-neutral as stock sold off in the wake of a pending acquisition.

Illumina’s 0% convertible notes due 2023 dropped 4 points outright with stock down more than 7%.

The notes were changing hands at 107 in the late afternoon.

They gained about 1 point dollar-neutral, a source said. The notes were also pushing out on Wednesday and were up about 0.5 point on hedge.

Illumina’s 0.5% convertible notes due 2021 dropped about 9 points outright.

They were also up about 1 point dollar-neutral.

While there was definite buying interest in the name, some sources felt the notes were still unattractive.

Illumina stock traded to a high of $316.81 and a low of $293.49 before closing the day at $298.02, a decrease of 7.58%.

The genetic analysis company’s stock has been on a downward spiral since news broke that it was in talks to acquire cancer diagnostic company Grail Inc. in a deal valued at $8 billion.

Mentioned in this article:

Cardlytics Inc. Nasdaq: CDLX

Illumina Inc. Nasdaq: ILMN

Marcus Corp. NYSE: MCS

Medallia Inc. NYSE: MDLA

Shopify Inc. NYSE: SHOP

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