Morning Commentary: Lucid Group convertibles eyed; Confluent jumps; TechTarget flat

By Abigail W. Adams

Portland, Me., Dec. 9 – The convertibles primary market continued to roar in the last month of the year with Lucid Group Inc. unveiling a $1.75 billion offering of five-year convertible notes, which is slated to price after the market close.

While the deal modeled cheap assuming a regular borrow, the short interest in the name is high and many found the credit spread used by underwriters aggressive.

Market players also pointed to the unusual timing of the deal given the company’s recent disclosure that the Securities and Exchange Commission was investigating the SPAC deal that brought the company public.

As market players eyed Lucid’s offering, $1.36 billion in new paper flooded the secondary space.

New paper from Confluent Inc. was performing well in active trading with the notes jumping on an outright and dollar-neutral basis. However, new paper TechTarget, Inc. was flat outright in light volume early in the session.

Lucid eyed

Lucid Group plans to price $1.75 billion of five-year green 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 50% to 55%, according to a market source.

The deal was heard to be in the market with assumptions of 350 basis points over Libor and a 48% vol., according to a market source.

Assuming a regular borrow, the deal modeled 2.2 points cheap at the midpoint of talk.

However, the short interest of the float is over 7% and borrow costs could be as high as 2%, a source said.

Assuming a borrow of 2%, the fair value of the deal modeled out to 99.56, a source said.

The credit assumption for the name was “extremely tight,” given its short credit history and current fundamentals, a source said.

The Newark, Calif.-based electric vehicle manufacturer went public through a SPAC deal in July and currently produces no revenue.

Lucid announced last week that the SEC was investigating the $24 billion SPAC deal.

Confluent jumps

Confluent priced $1 billion of five-year convertible notes after the market close on Wednesday at par with a coupon of 0% and an initial conversion premium of 45%.

Pricing came at the rich end of talk for a coupon of 0% to 0.5% and richer than initial talk for an initial conversion premium of 37.5% to 42.5%, according to a market source.

The new paper saw a strong start in the aftermarket with an average outright price of 103.

The notes expanded 3 to 3.5 points dollar-neutral.

Confluent’s stock was changing hands at $68.01, a decrease of 1.45%, shortly before 11 a.m. ET.

TechTarget’s exchange

TechTarget priced $360 million of five-year convertible notes after the market close on Wednesday at par at the rich end of talk with a coupon of 0% and an initial conversion premium of 37.5%.

Price talk was for a coupon of 0% to 0.25% and an initial conversion premium of 32.5% to 37.5%, according to a market source.

Concurrently with the offering, TechTarget repurchased or exchanged $149.9 million of its outstanding 0.125% convertible notes due 2025 for $147.1 million and 0.8 million shares in privately negotiated transactions.

TechTarget’s new 0% notes were slow to trade early Thursday with the notes changing hands between 99.75 and par in light volume, a source said.

TechTarget’s stock was changing hands at $94.64, a decrease of 1.05%, shortly before 11 a.m. ET.

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