MongoDB, Luckin convertibles hit aftermarket, expand on debut; Dermira skyrockets

By Abigail W Adams

Portland, Me., Jan. 10 – The convertible secondary space ended an active week with heavy trading volume after the primary market priced $1.4 billion in new paper.

MongoDB Inc.’s $1 billion offering of six-year convertible notes and Luckin Coffee Inc.’s $400 million offering of five-year convertible notes were in demand in the secondary market with both seeing large dollar-neutral expansions.

Outside of the new paper, Dermira Inc.’s 3% convertible notes due 2022 skyrocketed in active trading following news Eli Lilly & Co. was buying out the biotech firm.

MongoDB expands

MongoDB’s new offering of convertible notes was in demand in both the primary and secondary market with the offering upsized substantially and the notes seeing a large dollar-neutral expansion.

The New York-based software company priced an upsized $1 billion offering of six-year convertible notes after the market close on Thursday with a coupon of 0.25% and an initial conversion premium of 42.5%.

Pricing came in line with revised talk for a coupon of 0.25% and at the rich end of talk for 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 greenshoe was also upsized to $150 million.

The initial size of the offering was $750 million with a greenshoe of $112.5 million.

The 0.25% notes were changing hands at 102.25 in the late afternoon with stock off about 0.5%. They were expanded about 2 points on a dollar-neutral, or hedged, basis, a market source said.

“I knew this one would do well,” a source said.

While the new paper was performing well, volume was relatively light given the size of the deal.

The 0.25% notes had only traded 18 times by the late afternoon with $15 million in reported volume, according to a market source said.

MongoDB stock closed Friday at $149.32, a decrease of 0.43%.

Approximately $479.2 million of the proceeds from the new offering will be used to repurchase for cash about $210 million of the company’s outstanding 0.75% convertible notes due 2024 in privately negotiated transactions.

Luckin Coffee rips

While there was a diversity of opinion about the attractiveness of Luckin Coffee’s convertible notes offering, the paper was in demand in the secondary space with the notes ripping higher throughout the session.

Luckin priced $400 million five-year convertible notes after the market close on Thursday at the midpoint of talk with a coupon of 0.75% and an initial conversion premium of 30%.

Price talk was 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 priced concurrently with an upsized secondary offering of 9 million American Depositary Shares, which priced at $42.00 a share.

The initial size of the offering was 7.2 million ADS.

Shareholder Centurium Capital also sold 4.8 million ADS for a total secondary offering of 13.8 million shares.

The 0.75% notes were up 2 points dollar-neutral early in the session and continued to gain as the session progressed, sources said.

“I thought they would come in. There was concern about the borrow, but they just ripped higher,” a source said.

The 0.75% notes were changing hands at 103.25 versus an equity price of $43.70 in the late afternoon.

They were expanded about 4 points dollar-neutral heading into the market close, a source said.

The notes dominated activity in the secondary space. There was more than $43 million in reported volume by the late afternoon.

Luckin’s ADSs closed Friday at $42.65, a decrease of 3.88%.

While there was concern the borrow on the Beijing-based company’s equity was tight, the notes were priced to move, sources said.

Sources pegged the deal more than 5 points cheap at the midpoint of talk. The three-year put feature on the notes also increased the attractiveness of the offering.

Dermira skyrockets

Dermira’s 3% convertible notes due 2022 skyrocketed in active trading on Friday after news broke that Eli Lilly would acquire the company.

The notes jumped more than 5 points outright. They were changing hands at 101.25 in the late afternoon with more than $35 million in reported volume, according to a market source.

The bonds have long been busted and spent most of 2019 in the mid-80 range. They only recently moved to the mid-90 range in December.

“They’re trading like a (Eli) Lilly bond now,” a market source said.

The takeover will trigger the change-of-control put but “no one will put,” the source said.

Dermira stock closed Friday at $19.225, an increase of 4.83%.

Eli Lilly announced prior to the market open that it would acquire Dermira in an all-cash transaction that valued Dermira at $1.1 billion.

Eli Lilly will commence a tender offer to acquire all outstanding Dermira shares for $18.75. The deal is expected to close in the first quarter.

Mentioned in this article:

Dermira Inc. Nasdaq: DERM

Luckin Coffee Inc. Nasdaq: LK

MongoDB Inc. Nasdaq: MDB

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