Rapid7, CNX convertibles on tap; Southwest Airlines in demand; Farfetch, Copa eyed

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 three more issuers set to price a combined $1.5 billion after the market close on Tuesday.

Rapid7 Inc. plans to price $200 million of five-year convertible notes after the market close on Tuesday with price talk for a coupon of 2% to 2.5% and an initial conversion premium of 27.5% to 32.5%, according to a market source.

Southwest Airlines Co. also plans to price an offering of five-year convertible notes and CNX Resources Corp. plans to sell $300 million of six-year convertible notes after the market close.

Southwest Airlines’ and CNX Resources’ offerings looked cheap, sources said – a theme among the onslaught of recent deals.

Southwest Airlines’ new offering was heard to be playing to massive demand with the deal upsizing and talk tightening, sources said.

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.

While Farfetch’s convertible notes were expanding on debut, Copa’s notes were contracting.

Luvin’ the LUV

Southwest Airlines convertible notes offering was heard to be playing to massive demand with the deal upsizing and talk tightening twice during bookbuilding, sources said.

Southwest plans to price an upsized offering of $1.75 billion of five-year convertible notes (Baa1/BBB/BBB+) after the market close on Tuesday.

Talk was heard to have tightened to a coupon of 1.5% to 2%, a source said.

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

The initial size of the deal was $1 billion.

However, the offering was heard to have been playing to $1 billion in demand at the time of its announcement, a source said.

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 initial 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 initial 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.

However, losses were narrower than expected.

Southwest reported losses per share of 15 cents versus analyst expectations for losses of 48 cents.

Revenue was $4.2 billion versus analyst expectations for revenue of $4.4 billion.

CNX eyed

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 deal was heard to be marketed with assumptions of 1,100 bps over Libor and a 45% vol., a market source said.

The deal looked cheap, a market source said.

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.

CNX was following the same playbook as EQT with some thinking CNX was a better offering, a source said.

The deal terms were more attractive than EQT, another source said.

Farfetch expands

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 gained on both an outright and dollar-neutral basis on its secondary market debut.

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 notes continued to trade between 103 and 103.75 heading into the market close.

They ended the day at 103.25 bid, 103.75 offered versus a stock price of $12.48, according to a market source.

The notes expanded about 1 point dollar-neutral.

The new paper dominated activity in the secondary space with more than $131 million in reported volume.

Farfetch stock traded to a low of $12.10 and a high of $12.61 before closing the day at $12.40, an increase of 3.85%.

Copa Holdings volatile

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 volatile on an outright basis and contracting dollar-neutral.

The 4.5% notes traded as low as 98.75 soon after the opening bell. However, they rallied as stock caught a bid heading into the afternoon, sources said.

The notes were seen changing hands at 102.25 in the late afternoon with stock up more than 4%.

The closed the day at 103.75 bid, 104.75 offered versus a stock price of $44.88, a market source said.

While the notes closed the day with gains on an outright basis, they were contracted dollar-neutral, a source said.

The notes were active with more than $72 million in reported volume about one hour before the market close.

Copa stock traded to a low of $41.71 and a high of $44.98 before closing the day at $44.72, an increase of 8.2%.

Mentioned in this article:

CNX Resources Corp. NYSE: CNX

Copa Holdings SA NYSE: CPA

Farfetch Ltd. NYSE: FTCH

Rapid7 Inc. Nasdaq: RPD

Southwest Airlines Co. NYSE: LUV

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