Morning Commentary: Southwest Airlines, CNX on tap; Farfetch, Copa debut in aftermarket

By Abigail W. Adams

Portland, Me., April 28 – Issuers continued to step forward to tap the convertibles market at an active pace with two issuers pricing a combined $700 million after the market close on Monday and two more issuers set to price a combined $1.3 billion after the market close on Tuesday.

Southwest Airlines Co. plans to price $1 billion of five-year convertible notes and CNX Resources Corp. plans to sell $300 million of six-year convertible notes after the market close on Tuesday.

The deals looked cheap, sources said – a theme among the onslaught of recent deals.

As market players eyed the new deals in the pipeline, Farfetch Ltd.’s newly priced 3.75% convertible notes due 2027 and Copa Holdings SA’s newly priced 4.5% convertible notes due 2025 made their aftermarket debut.

Southwest eyed

Southwest Airlines plans to price $1 billion of five-year convertible notes (BBB) after the market close on Tuesday with price talk for a coupon of 2% to 2.5% and an initial conversion premium of 30% to 35%.

The registered offering is pricing concurrently with a secondary offering of 55 million shares.

The convertible notes were heard to be in the market with assumptions of 550 basis points over Libor and a 40% vol., a source said.

Using those assumptions, the deal looked 7.33 points cheap at the midpoint of talk.

However, with airlines badly battered due to the coronavirus, some sources felt the 550 bps credit spread was aggressive and pegged assumptions at 800 bps over Libor and a 40% vol.

However, even with a wider credit spread, the deal looked about 1.625 points cheap at the midpoint of talk, a source said.

Southwest reported first-quarter earnings prior to the market open.

The airline saw its first quarterly loss in almost a decade and expects the current quarter to be even worse.

CNX in focus

CNX Resources plans to price $300 million of six-year convertible notes after the market close on Tuesday with price talk for a coupon of 2.25% to 2.75% and an initial conversion premium of 17.5% to 22.5%.

The company is the second natural gas production company to tap the convertibles market in as many weeks.

EQT Corp.’s 1.75% convertible notes due 2026 was a successful offering with the deal upsized, pricing on the rich end of talk and skyrocketing on both an outright and dollar-neutral basis in the aftermarket.

Farfetch taps market

Farfetch priced an upsized $350 million offering of seven-year convertible notes after the market close on Monday at par with a coupon of 3.75% and an initial conversion premium of 35%.

Pricing came at the cheap end of tightened talk for a coupon of 3.5% to 3.75% and an initial conversion premium of 35% to 37.5%.

Initial price talk was for a coupon of 3.5% to 4% and an initial conversion premium of 32.5% to 37.5%, according to a market source.

The greenshoe was also upsized to $50 million.

The initial size of the deal was $300 million with a greenshoe of $45 million.

The new paper jumped on an outright basis as stock gained.

The 3.75% notes traded as high as 104 early in the session. However, the majority of prints were on a 103-handle, a market source said.

The new paper dominated activity in the secondary space with $83 million in reported volume about one hour into the session.

Farfetch stock was changing hands at $12.30, an increase of 3.26%, shortly before 11 a.m. ET.

Copa Holdings prices

Copa Holdings priced $350 million of five-year convertible notes after the market close on Monday at par at the cheap end of talk with a coupon of 4.5% and an initial conversion premium of 25%.

Price talk was for a coupon of 4% to 4.5% and an initial conversion premium of 25% to 30%, according to a market source.

The new paper was flat on an outright basis and contracting dollar-neutral.

The 4.5% notes traded as low as 98.75 soon after the opening bell. However, the majority of prints were at par even with stock up more than 2%, sources said.

Copa stock traded as high as $43.73 shortly after the opening bell but came in to change hands at $42.04, an increase of 1.72%, shortly before 11 a.m. ET.

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