Arch Resources convertibles on tap; Akamai, DexCom down after earnings beat expectations

By Rebecca Melvin

New York, Oct. 28 – Convertibles moved lower in quiet trade on Wednesday, mostly in line with their underlying stocks, as the broader markets weakened amid a raft of negative headlines regarding the Covid-19 coronavirus pandemic and earnings reports, according to market sources.

After the market close, Arch Resources Inc. announced plans late Wednesday to price $125 million of five-year convertible senior notes under Rule 144A. Shares of the St. Louis-based coal company sank $1.85, or 5.2%, to $34.00 post close after closing down $0.90, or 2.5%, to $35.85 in the session.

Akamai Technologies Inc.’s sister convertibles slumped in active trade after the technology-security company reported better-than-expected revenue for the third quarter and higher profit.

DexCom Inc.’s sister convertibles were also both lower in trade in tandem with a drop in their underlying stock after earnings and revenue surpassed estimates.

Shares of Callaway Golf Co. plunged more than 20% on Wednesday after the company provided preliminary third-quarter results and announced a deal to acquire Topgolf Entertainment, a destination venue for people to play technology-enabled golf games, in an all-stock transaction that values Topgolf at about $2 billion. Callaway already owned 14% of Topgolf.

Meanwhile, Southwest Airlines Co.’s 1.25% convertible note due 2025 were atop the most actives list on Wednesday with that paper down 5 points to 130.4 as the shares fell 4.5%.

Despite the activity sparked by the catalyst of earnings reports, trading was still considered relatively quiet.

“It’s dead,” a New York-based sellsider told Prospect News. There was some very modest selling, “but most people don’t really want to do anything until election outcome is known. There have been only four new deals this month, too, so “it’s not like anyone is really incentivized to sell either to make room for new paper,” the sellsider said.

With the exception of significant earnings surprises, “I think it stays quiet until there is clarity around the election,” the sellsider said.

The U.S. Election will take place on Nov. 3.

Akamai bonds active

Akamai’s 0.125% convertible notes due 2025 were active early Wednesday and trading off alongside stock. They were down 7.5 points outright to 118.49, according to Trace data at the end of the session.

The 0.325% notes fell by nearly 6 points to 107.5.

Akamai’s stock traded down $9.31, or 8.7%, to $97.40.

Stock was trading off despite a third-quarter earnings beat. It responded similarly to a second-quarter earnings beat.

Akamai reported earnings per share of $0.95, compared to $0.84 per share earnings for the year-earlier period.

Revenue of $792.9 million also beat analyst expectations for revenue of $776 million.

DexCom notes fall

DexCom’s 0.25% convertibles due 2025 traded down 4.4 points to 98.7, and its 0.75% convertibles due 2023 traded down 28 points to 207.

DexCom’s stock closed down $31.51, or 8.3%, at $349.12.

The diabetes care technology provider reported better-than-expected earnings after the market close on Tuesday, as its business rebounded quickly from a coronavirus inspired meltdown earlier this year. The stock is up more than 70% year to date but has been relatively flat in the last couple of months.

DexCom reported income of $0.94 per share, which was up from $0.65 per share in the year-earlier period.

The company reported strong volume growth for its G6 device, which was driven by new patient additions. However, year-over-year sales growth is slowing for both its U.S. and international business.

DexCom raised its full-year guidance, citing a boost from a partnership with Eli Lilly that provides U.S. health care providers that use DexCom’s G6 devices with Lilly’s new rapid-acting insulin.

Callaway in demand

Callaway Golf provided preliminary third-quarter guidance in which it said it expects revenue growth of 12% in the third quarter, compared to a 34% drop in its second quarter.

The company has been recovering from pandemic-related impacts more quickly than expected. But stocks dropped in reaction to the dilution that will result from an all-stock deal and the company’s expected assumption of about $555 million in net debt.

The Callaway convertibles gapped lower by 24 points to 117.42, while the stock closed down $3.63, or 18.8%, to $15.65.

Arch Resources to price

Arch Resources, a St. Louis-based company that owns and operates coal mines, announced plans late Wednesday to price $125 million of five-year convertible senior notes.

There is an $18.75 million greenshoe.

The notes are non-callable until Nov. 30, 2023 and then are provisionally callable if shares exceed 130% of the conversion price. Noteholders will have the right to convert their notes in certain circumstances.

The proceeds will be used to for general corporate purposes, including funding the company’s Leer South mine development, and to fund the cost of entering into the capped call transactions.

In connection with the pricing of the notes, Arch Resources expects to enter into one or more privately negotiated capped call transactions with certain of the initial purchasers of the notes. They are expected generally to reduce the potential dilution to Arch Resources' common stock upon any conversion of the notes and/or to offset any cash payments.

Mentioned in this article:

Akamai Technologies Inc. Nasdaq: AKAM

Arch Resources Inc. Nasdaq: ARCH

Callaway Golf Co. NYSE: ELY

DexCom Inc. Nasdaq: DXCM

Southwest Airlines Co. NYSE: LUV

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