Shift4 in focus, expands on debut; Southwest Airlines better dollar-neutral; Kadmon up

By Abigail W. Adams

Portland, Me., July 22 – The first new convertible bonds to be priced in more than three weeks hit the secondary space on Thursday.

Shift4 Payments Inc. priced an upsized $550 million of six-year convertible notes after the market close on Wednesday.

The new paper dominated activity in the secondary space and made large gains on an outright and dollar-neutral basis.

While Shift4’s new paper was in focus, the payment processing company’s outstanding 0% convertible notes due 2025 remained active.

While the notes improved on an outright basis alongside stock, they remained contracted on hedge.

Southwest Airlines Co.’s 1.25% convertibles due 2025 (Baa1/BBB) also continued to see active trading following the company’s second-quarter earnings report.

While the notes were down outright, they improved dollar-neutral as stock traded off.

Kadmon Holdings Inc.’s 3.625% convertible notes due 2027 continued to outperform on Thursday with the notes approaching par.

The 3.625% convertible notes have seen a large dollar-neutral expansion since news broke the previous week about U.S. Food and Drug Administration approval for one of the biopharmaceutical company’s products.

Shift4 in demand

Shift4’s latest offering of convertible notes was in demand during bookbuilding and in the aftermarket with the deal upsizing, pricing rich and skyrocketing in the secondary space.

Shift4 priced an upsized $550 million of six-year convertible notes after the market close on Wednesday at par at the rich end of talk with a coupon of 0.5% and an initial conversion premium of 42.5%.

Price talk was for a coupon of 0.5% to 1% and an initial conversion premium of 37.5% to 42.5%, according to a market source.

The new paper dominated activity in the secondary space and was making large gains on an outright and dollar-neutral, or hedged, basis.

The 0.5% notes traded up to 104 out of the gate – a level it maintained for much of Thursday’s session.

They expanded upwards of 2.5 points dollar-neutral early in the session, a source said.

Another source saw them expanded 2 points dollar-neutral in the late afternoon.

The payment processing company’s 0% convertible notes due 2025 also remained active in the aftermarket.

The 0% notes improved on an outright basis and traded back up to 130 in the late afternoon.

However, the notes were moving in line with stock and were unchanged dollar-neutral.

They remained contracted by about 1 point since Wednesday’s session, a source said.

Shift4’s stock traded to a high of $90.50 and a low of $86.59 before closing the day at $89.02, an increase of 3.30%.

The company previously planned to price a concurrent secondary offering of 7 million shares with the company planning to offer 1,791,818 shares and entities associated with Searchlight Capital Partners LP offering 5,208,182 shares.

However, the company canceled the secondary offering.

Southwest’s earnings

Southwest Airlines’ 1.25% convertible notes due 2025 remained active on Thursday.

While the notes were down outright, they improved dollar-neutral as stock traded off on the heels of the company’s second-quarter earnings report.

The 1.25% convertible notes were down about 4 points outright with stock off over 3%.

They traded down to 148.25 in the late afternoon.

However, the notes gained about 0.25 point on hedge, a source said.

Southwest’s stock traded to a high of $52.27 and a low of $50.84 before closing the day at $51.29, a decrease of 3.48%.

Southwest reported adjusted losses per share of 35 cents versus analyst expectations for losses of 23 cents.

However, revenue of $4.008 billion topped analyst expectations for revenue of $3.939 billion.

Kadmon broaches par

Kadmon’s 3.625% convertible notes due 2027 continued to outperform in the secondary market with the once struggling notes again approaching par.

The notes traded up to 99 on Thursday, a source said.

They started the week at 93.

The 3.625% notes were the largest gainer in the market on a dollar-neutral basis over the course of the week, a source said.

They have expanded upwards of 5 points dollar-neutral since news broke last Friday about FDA approval for one of the pharmaceutical company’s products.

Kadmon’s stock traded to a low of $3.74 and a high of $4.40 before closing the day at $4.32, an increase of 9.92%.

Stock has gained more than 20% since last Friday.

The FDA approved Rezyrock, a product in Kadmon’s pipeline, last Friday for the treatment of graft-versus-host disease in adult and pediatric patients.

Mentioned in this article:

Kadmon Holdings Inc. Nasdaq: KDMN

Shift4 Payments Inc. NYSE: FOUR

Southwest Airlines Co. NYSE: LUV

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