MongoDB upsizes offering; Luckin Coffee on deck; JPMorgan exchangeables hover at issue

By Abigail W. Adams

Portland, Me., Jan. 9 – The convertibles secondary space saw another active day with $120 million in reported volume about one hour into Thursday’s session and about $600 million in reported volume by the late afternoon, sources said.

Estimated volume exceeded $1 billion about one hour before the market’s close.

While the secondary space was active, focus was on the two deals set to price after the market close.

MongoDB Inc.’s offering of six-year convertible notes was in demand during bookbuilding with the deal upsizing to $1 billion from $750 million.

Following a two-day marketing period, Luckin Coffee Inc.’s $400 million offering of five-year convertible notes was also set to price after the market close. The deal looked cheap, sources said.

However, some questioned the borrow.

While the audience for the deal was limited, J.P. Morgan Chase Bank, NA priced $500 million three-year cash-settled bonds exchangeable for Alibaba Group Holding Ltd. shares after the market close on Wednesday.

The deal was hovering around its offer price in secondary trading.

MongoDB eyed

MongoDB’s offering of six-year convertible notes was in demand during bookbuilding with the deal upsizing to $1 billion from $750 million.

Price talk was also revised to a fixed coupon of 0.25% and an initial conversion premium of 40% to 42.5%, according to a market source.

Initial price talk was for a coupon of 0% to 0.5% and an initial conversion premium of 37.5% to 42.5%.

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 initial price 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.

While some lamented the low coupon and high premium range for the new offering, “it’s what companies like this are going for,” a source said.

MongoDB’s previous issue of convertible notes was highly successful. The company’s stock has more than tripled since the 0.75% convertible notes due 2024 priced in June 2018.

The 0.75% notes are deep in the money and trade at double par, a market source said.

While many may be looking at the company’s previous performance as an indication of how it will perform in the future, the high premium on the new offering will hurt if there is a pullback in the stock, a 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, another source said. “If they buy back the old and people want exposure... bingo, bango,” a market source said.

Luckin on deck

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

Price talk remained for a coupon of 0.5% to 1% and an initial conversion premium of 27.5% to 32.5%.

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

The notes also carry an investor put in three years, which increased the attractiveness of the deal.

“It’s clear they wanted to get the deal done,” a source said.

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

Despite the concurrent offering, sources felt the borrow on the stock was tight, which was pointed to as a drawback to the deal.

Luckin’s equity was also on a tear during Thursday’s session, closing the day at $44.37, an increase of 12.44%.

With stock close to its 52-week high, some sources questioned whether it was the best time to buy the convertible notes.

JPMorgan at issue

While the audience for the notes was limited, JPMorgan priced $500 million three-year cash-settled bonds exchangeable for Alibaba shares after the market close on Wednesday with a coupon of 0.125% and a reoffer price of 109.5.

Price talk was for a fixed coupon of 0.125%, a fixed exchange premium of 20% and an offer price of 109.5, according to a market source.

While the exchange premium would have been 20% had it priced at par, the premium was increased to around 30% due to the offer price, a market source said.

The reference share price had also yet to be determined and would be based on a volume weighted average.

The 0.125% exchangeables were hovering around their issue price in secondary trading and were changing hands at 109.25 bid, 109.75 offered, a market source said.

Mentioned in this article:

Alibaba Group Holding Ltd. NYSE: BABA

Luckin Coffee Inc. Nasdaq: LK

MongoDB Inc. Nasdaq: MDB

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