Morning Commentary: Cardlytics, Marcus convertible offerings eyed in primary market

By Abigail W. Adams

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

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.

The offerings both looked cheap, sources said.

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

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.

However, 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.

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.

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