Morning Commentary: Callaway on deck; Southwest surges; 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 the largest deal 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+) with the deal in high demand during bookbuilding.

The notes skyrocketed on their aftermarket debut on Wednesday.

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 paper also saw a large dollar-neutral expansion in the secondary space on Wednesday.

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

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

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.

They traded as high as 110 early in the session and were expanded 6 to 6.5 points dollar-neutral, a market source said.

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

Southwest stock was changing hands at $30.92, an increase of 4%, shortly before 11 a.m. ET.

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.

They were up about 1.5 points dollar-neutral, a source said.

CNX stock was $10.75, an increase of 0.51%, shortly before 11 a.m. ET.

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 but were changing hands between 101.5 and 102.5 about one hour into the session.

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

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

Rapid7 stock was $45.03, a decrease of 4.01%, shortly before 11 a.m. ET.

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