NeoGenomics on tap; Callaway tightens talk; Southwest up; CNX, Rapid7 expand on debut

By Abigail W. Adams

Portland, Me., April 29 – The convertibles primary market is on track to see its heaviest volume week for new deals year to date with one of the largest deals of the year pricing after the market close on Tuesday.

Southwest Airlines Co. priced a massively upsized $2 billion offering of five-year convertible notes (Baa1/BBB/BBB+).

The notes dominated activity in the secondary space on Wednesday and skyrocketed on an outright and dollar-neutral basis.

CNX Resources Corp. also priced $300 million of six-year convertible notes and Rapid7 Inc. priced $200 million of five-year convertible notes after the market close on Tuesday.

The new notes also saw a large dollar-neutral expansion on their aftermarket debut.

While $3.2 billion in new paper has already cleared the market, the overnight deals continue.

Callaway Golf Co. plans to price $200 million of six-year convertible notes after the market close on Wednesday.

The deal was in demand during bookbuilding with talk tightening, sources said.

“They’re gonna keep coming,” a market source said. “People need the money, and buyers are going to take advantage of the wider spreads.”

While new deals were in focus, Carnival Corp.’s 5.75% convertible notes (BBB-) due April 1, 2023 also saw high-volume activity on Wednesday with the notes jumping outright but contracting dollar-neutral as stock surged.

NeoGenomics Inc. plans to price $150 million of five-year convertible notes after the market close on Wednesday with price talk for a coupon of 1.25% to 1.75% and an initial conversion premium of 25% to 30%, according to a market source.

The notes are pricing concurrently with a $100 million common stock offering with talk for a reoffer price of $28.25 to $29.25.

Underwriters are also offering up to $40 million of borrowed shares to facilitate the hedging transactions of purchasers of the convertible notes.

Callaway in demand

Callaway’s $200 million offering of six-year convertible notes was heard to be in demand during bookbuilding with price talk tightening to a coupon of 2.75% to 3% and an initial conversion premium of 30%, according to a market source.

Initial price talk was for a coupon of 3% to 3.5% and an initial conversion premium of 25% to 30%.

The offering is set to price after the market close on Wednesday.

The golf equipment and active lifestyle company is a sports retailer that has the potential to return to normal fast once the economy reopens, a source said.

The offering was heard to be as much as 6x oversubscribed with heavy demand from outright accounts, another source said.

A lot of LUV

Southwest Airlines’ convertible notes were playing to massive demand during bookbuilding with the deal doubling in size.

The demand followed the notes into the secondary space on Wednesday where they skyrocketed on an outright and dollar-neutral basis.

Southwest Airlines priced an upsized $2 billion of five-year convertible notes (Baa1/BBB/BBB+) after the market close on Tuesday at par with a coupon of 1.25% and an initial conversion premium of 35%.

Pricing came tighter than tightened talk for a coupon of 1.5% to 2%, according to a market source.

Initial talk was for a coupon of 2% to 2.5% and an initial conversion premium of 30% to 35%.

The greenshoe was also upsized to $300 million.

The initial size of the offering was $1 billion with a greenshoe of $150 million.

Concurrently with the convertible notes, the company priced an upsized secondary offering of 70 million shares at $28.50 a share.

The initial size of the secondary stock offering was 55 million shares.

The notes dominated activity in the secondary space with more than $700 million in reported volume in the late afternoon.

The first print for the notes was 107.25, and “they just ripped from there,” a source said.

The notes traded as high as 111.5 during Wednesday’s session.

They were seen expanded 6 to 6.5 points dollar-neutral early in the session and 7.5 to 8 points dollar-neutral in the late afternoon, sources said.

“There’s nothing like an investment-grade rating to boost demand for a new convertible bond,” a market source said.

Unlike Carnival, the rating may even be warranted for Southwest, the source said.

The large capital raise was a positive for the company and “pulled the credit to a better place,” another source said.

The company also announced on Wednesday plans to price a two-tranche offering of straight debt.

Southwest stock traded to a low of $29.43 and a high of $31.80 before closing the day at $30.97, an increase of 4.17%.

CNX expands

CNX Resources priced $300 million of six-year convertible notes after the market close on Tuesday at par with a coupon of 2.25% and an initial conversion premium of 20%, according to a market source.

Pricing came at the rich end of talk for a coupon of 2.25% to 2.75% and the midpoint of talk for an initial conversion premium of 17.5% to 22.5%.

The notes were also expanding on their secondary market debut.

The notes were changing hands in the 101.5 to 102 context early in the session and traded as high as 103.25 in the mid-afternoon.

The 2.25% notes were expanded 1 to 1.5 points dollar-neutral, sources said.

CNX stock traded to a low of $10.41 and a high of $10.95 before closing the day at $10.75, an increase of 0.47%.

Rapid7 trades up

Rapid7 priced $200 million of five-year convertible notes after the market close on Tuesday at par at the midpoint of talk with a coupon of 2.25% and an initial conversion premium of 30%.

Price talk was for a coupon of 2% to 2.5% and an initial conversion premium of 27.5% to 32.5%, according to a market source.

The notes traded as low as par soon after the opening bell.

However, they were changing hands between 101.5 and 102.5 about one hour into the session and traded as high as 103.75 in the late afternoon.

They closed the day at 102.875 bid, 103.875 offered versus a stock price of $45.81, a source said.

The notes were expanded 3 to 4 points dollar-neutral in intraday trading.

“They’re doing much better than expected with stock down,” a source said.

Rapid7 stock traded to a low of $43.44 and a high of $46.06 before closing the day at $45.81, a decrease of 2.41%.

Carnival jumps

While new paper was in focus, Carnival’s 5.75% convertible notes due 2023 also saw high-volume activity with the notes jumping outright but seeing a slight contraction dollar-neutral on another strong day for the cruise ship operator’s stock.

The 5.75% convertible notes traded up more than 25 points outright. They traded as high as 180 in intraday activity but closed the day around 175.75, sources said.

The notes were contracting slightly on the move up due to outright selling and were down 0.25 to 0.375 point dollar-neutral, a source said.

The notes saw more than $84 million in reported volume in the late afternoon.

Carnival stock traded to a low of $15.63 and a high of $16.83 before closing the day at $16.69, an increase of 15.54%.

Mentioned in this article:

Callaway Golf Co. NYSE: ELY

Carnival Corp. NYSE: CCL

CNX Resources Corp. NYSE: CNX

NeoGenomics Inc. Nasdaq: NEO

Rapid7 Inc. Nasdaq: RPD

Southwest Airlines Co. NYSE: LUV

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