Morning Commentary: Medallia, Shopify convertible offerings eyed in early activity

By Abigail W. Adams

Portland, Me., Sept. 15 – The convertibles primary market returned to action on Tuesday with two overnight offerings on deck.

Medallia Inc. plans to price $500 million of five-year convertible notes and Shopify Inc. plans to price $800 million of five-year convertible notes after the market close on Tuesday.

The deals looked cheap to fair value based on underwriters’ assumptions, sources said.

However, some sources felt assumptions for Shopify were too conservative.

Medallia in focus

Medallia plans to price $500 million of five-year convertible notes after the market close on Tuesday with price talk for a coupon of 0.125% to 0.625% and an initial conversion premium of 32.5% to 37.5%, according to a market source.

The deal was being marketed with assumptions of 450 basis points over Libor and a 40% vol.

Using those assumptions, the deal looked about 1.5 points cheap at the midpoint of talk.

Another source saw the deal almost 3 points cheap.

Shopify on tap

Shopify plans to price $800 million of five-year convertible notes after the market close on Tuesday with price talk for a fixed coupon of 0.125% and an initial conversion premium of 52.5% to 57.5%, according to a market source.

Concurrently with the convertible notes offering, the company plans to price a secondary offering of $1.1 billion class A subordinate voting shares.

The deal was being marketed with assumptions of 225 bps over Libor and a 40% vol., sources said.

Using those assumptions, one source saw the deal as 0.79 point cheap at the midpoint of talk.

However, another source saw the deal as 2.6 points cheap.

Underwriters were being conservative with Shopify’s credit assumptions, one source said.

The Ottawa-based global ecommerce company has a huge market cap of $113 billion and stock has “gone straight up” over the past five years, another source said.

However, given the outcome of RingCentral Inc.’s recently priced 0% convertible notes due 2026, which were last seen trading at 97, “I’d be fearful to get too aggressive [on Shopify],” the source said.

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