Callaway Golf, NeoGenomics convertibles expand on debut; Southwest Airlines in focus

By Abigail W. Adams

Portland, Me., April 30 – The convertibles primary market logged its most active week of the year for new deal activity with two upsized offerings bringing the weekly tally to $3.6 billion.

Callaway Golf Co. priced an upsized $225 million of six-year convertible notes and NeoGenomics Inc. priced an upsized $175 million of five-year convertible notes after the market close on Wednesday.

The new paper was in demand during bookbuliding and in the aftermarket with both offerings trading up on an outright and dollar-neutral, or heged, basis on their secondary market debut on Thursday.

Meanwhile, Southwest Airlines Co.’s 1.25% convertible notes due 2025, which led primary market activity over the past week with its $2 billion offering, continued to dominate activity in the secondary space.

However, the notes were coming in slightly due to outright selling, sources said.

The influx of new paper, combined with end-of-month activity, made for an active session on Thursday with more than $1 billion in reported volume heading into the market close.

However, the new paper from Callaway, NeoGenomics and Southwest Airlines accounted for more than one-third of the reported volume.

Callaway in demand

Callaway Golf priced an upsized $225 million of six-year convertible notes after the market close on Wednesday at par at the rich end of talk with a coupon of 2.75% and an initial conversion premium of 30%.

Talk had been tightened 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 greenshoe was also upsized to $33.75 million.

The initial size of the deal was $200 million with a greenshoe of $30 million.

The deal saw heavy demand during bookbuilding, especially from outright accounts, with the offering as much as 6x oversubscribed, a source said.

The demand followed the notes into the secondary space.

They were marked at 102.5 bid, 103.5 offered on an outright basis and were trading at 100.5 bid, 101 offered versus a stock price of $13.55 on swap early in the session, a market source said.

They were changing hands around 102.5 heading into the market close and were seen expanded 1 to 1.25 points dollar-neutral, another source said.

The notes saw heavy volume with a large amount of trades printing pre-market open.

There was about $80 million in reported volume one hour into the session and $129 million in reported volume shortly before the market close.

Callaway stock traded to a low of $13.31 and a high of $14.69 before closing the day at $14.32, an increase of 5.68%.

NeoGenomics skyrockets

NeoGenomics priced an upsized $175 million of five-year convertible notes after the market close on Wednesday at par with a coupon of 1.25% and an initial conversion premium of 27.5%.

Pricing came at the rich end of talk for a coupon of 1.25% to 1.75% and at the midpoint of talk for an initial conversion premium of 25% to 30%, according to a market source.

The greenshoe was also upsized to $26.25 million.

The initial size of the deal was $150 million with a greenshoe of $22.5 million.

Concurrently with the convertible notes offering, the company priced a secondary offering of 4.4 million shares at $28.50 per share.

Underwriters of the secondary offering also offered 1.065 million of borrowed stock to facilitate the hedging transactions of purchasers of the convertible notes.

The notes were making gains on an outright and dollar-neutral basis.

The 1.25% notes were marked at 102.25 bid, 103.25 offered outright and were changing hands at 102.5 bid, 103.5 offered versus a stock price of $28.50 on swap early in the session.

The notes came in as stock continued to trade off as the session progressed.

They were trading around 101.5 in the late afternoon and were expanded about 1 point dollar-neutral, a source said.

The notes also saw high volume with $82 million on the tape heading into the market close.

While the convertible notes priced off of the secondary offering, NeoGenomics stock was taking a hit on Thursday due to the overnight offering.

Stock traded to a low of $27.23 and a high of $28.48 before closing the day at $27.34, a decrease of 11.86%.

Southwest dominates

Southwest Airlines’ 1.25% convertible notes due 2025 continued to dominate trading activity in the secondary space on Thursday.

However, the notes were slightly weaker.

The 1.25% notes were changing hands between 109.375 and 110 their second day in the secondary space.

They came in about 0.25 point dollar-neutral.

Outright selling was driving down the notes, a source said.

The notes continued to dominate activity with more than $200 million in reported volume heading into the market close.

Southwest stock was performing well despite a down day for the market.

Stock traded to a high of $31.69 and a low of $30.18 before closing the day at $31.25, an increase of 0.9%.

Stock was lifted after a Stifel analyst upgraded the stock to “buy” from “hold” and lifted the price target to $50 from $40.

Mentioned in this article:

Callaway Golf Co. NYSE: ELY

NeoGenomics Inc. Nasdaq: NEO

Southwest Airlines Co. NYSE: LUV

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