Lucid Group convertibles ‘not well received’; Confluent notes jump; 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.

The large offering was “not well received,” a source said, with the Newark, Calif.-based electric vehicle manufacturer’s valuation described as “absurd” and “ridiculous.”

While the deal experienced some pushback, it was heard to be fully subscribed and will cross the finish line.

As market players eyed Lucid’s offering, $1.36 billion in new paper flooded the secondary space as the rally in equities came to an end.

New paper from Confluent Inc. was performing well in active trading with the notes jumping on an outright and dollar-neutral basis, despite a rough day for the tech sector with the Nasdaq Composite closing the session down 1.71%.

However, new paper from TechTarget, Inc. was flat on an outright basis although it did see a nominal dollar-neutral expansion.

Lucid ‘not well received’

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 produces “a whopping $0 in revenue,” a source said.

Even after a decline in stock of about 18% on Thursday, the market cap for the company still stood at $63 billion.

“They haven’t sold anything,” a source said.

When competitor Tesla Inc. priced its first convertibles notes in 2013, it was producing revenue and had a market cap of $9 billion, a source said as a point of reference.

Sources called the valuation of the company “absurd,” and “ridiculous.”

In addition to a stretched valuation, Lucid announced last week that the Securities and Exchange Commission was investigating the $24 billion SPAC deal that brought it public.

The SEC investigation was not addressed on the call with investors, a source said.

However, despite the pushback on the deal, the offering was heard to be fully subscribed and is expected to cross the finish line.

While the price talk was aggressive, there is a possibility that the deal will come cheaper than anticipated providing more upside to the offering, a source said.

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 put in a strong performance in the aftermarket with the average outright price of the notes 103.

The notes expanded 3 to 3.5 points dollar-neutral, sources said.

Confluent’s stock traded to a low of $65.70 and a high of $69.59 before closing the day at $66.90, a decrease of 3.06%.

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 on Thursday with the notes wrapped around par in light volume, a source said.

The 0% notes expanded 0.5 point dollar-neutral.

However, the major gains from the new offering came from the exchange of the 0.125% convertible notes, a source said.

The 0.125% notes were changing hands around 145.5 on Thursday, according to Trace data.

The Newton, Mass.-based marketing and sales service provider for tech companies priced a $201.25 million issue of the 0.125% notes in December 2020.

TechTarget’s stock traded to a low of $92.74 and a high of $98.22 before closing the day at $93.27, a decrease of 2.48%.

Mentioned in this article:

Confluent Inc. Nasdaq: CFLT

Lucid Group Inc. Nasdaq: LCID

TechTarget, Inc. Nasdaq: TTGT

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