Morning Commentary: MongoDB convertibles offering eyed; Luckin Coffee notes on deck

By Abigail W. Adams

Portland, Me., Jan. 9 – The convertible secondary space saw another active morning with $120 million in reported volume about one hour into Thursday’s session, according to a market source.

However, focus was on the two deals set to price after the market close.

MongoDB Inc. plans to price $750 million of six-year convertible notes after the market close on Thursday with price talk for a coupon of 0% to 0.5% and an initial conversion premium of 37.5% to 42.5%, according to a market source.

The stock reference price will be based on the volume weighted average of stock during Thursday’s session.

The deal was heard to be in the market with assumptions of 250 basis points over Libor and a 40% vol.

Using those assumptions, the deal appeared about 0.9 point cheap at the midpoint of talk using a stock reference price of $140.27, a market source said.

With MongoDB an $8 billion market cap company that has $400 million in cash on the balance sheet, the credit spread was reasonable, the source said.

However, another source used a more conservative credit spread of 300 bps over Libor and pegged volatility at 42%.

Using those assumptions, the deal modeled about 0.25 point cheap, the source said.

With assumptions of 300 bps over Libor and a 45% vol., the deal modeled 1.5 points cheap, a source said.

“The vol. makes a big difference,” the source said.

A portion of proceeds from MongoDB’s new offering will be used to repurchase up to $240 million of the New York-based document-oriented database program company’s 0.75% convertible notes due 2024 in privately negotiated transactions.

MongoDB’s new offering will be an instant success given the buyback, a market source said. “If they buy back the old and people want exposure... bingo, bango,” a market source said.

MongoDB’s 0.75% convertible notes due 2024 are deep in the money and trade at double par, a market source said.

The company priced a $300 million issue of the 0.75% convertible notes in June 2018.

In addition to MongoDB, Luckin Coffee Inc.’s $400 million offering of five-year convertible notes is set to price after the market close following a two-day marketing period.

Price talk is for a coupon of 0.5% to 1% and an initial conversion premium of 27.5% to 32.5%, according to a market source.

The notes are pricing concurrently with a 12 million secondary offering of American Depositary Shares.

The deal looked cheap based on underwriters’ assumptions of 600 bps over Libor and a 45% vol. and is expected to do well, sources said.

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