Morning Commentary: K12 convertible notes price, trade up on debut; travel sector eyed

By Abigail W. Adams

Portland, Me., Aug. 27 – The convertibles primary market pumped out what promises to be the last deal of the week after the market close on Wednesday.

K12 Inc. priced an upsized $360 million of seven-year convertible notes.

The deal brings the primary market’s weekly tally to $1.26 billion, which priced over three deals.

While a slowdown from the previous two weeks, which each saw more than $4 billion price, the primary market remained abnormally active for a time traditionally referred to as the summer doldrums.

Meanwhile, K12’s new convertible notes were making large gains on an outright and dollar-neutral basis early in Thursday’s session.

However, outside of the new paper, the secondary space was quiet.

Equity markets were again on the rise following Federal Reserve chairman Jerome Powell’s speech and news of Abbott’s new rapid test for Covid-19.

While Abbott’s new test drove other health care names down, the travel and entertainment sectors were rallying on the news, a source said.

Southwest Airlines Co.’s 1.25% convertibles due 2025 were making gains in active trading early Thursday.

K12 trades up

K12 priced an upsized $360 million of seven-year convertible notes after the market close on Wednesday at the rich end of talk with a coupon of 1.125% and an initial conversion premium of 35%, according to a market source.

Price talk was for a coupon of 1.125% to 1.625% and an initial conversion premium of 30% to 35%.

The greenshoe was also upsized to $60 million.

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

The new paper was making gains on an outright and dollar-neutral basis.

The 1.125% notes traded up to 103 early in the session with stock off more than 2%.

K12 stock was $38.12, a decrease of 2.67%, shortly before 11 a.m. ET.

Southwest improves

Southwest Airlines’ 1.25% convertible notes due 2025 were active and making gains early Thursday as the travel sector rallied in response to news of Abbott’s rapid results test for Covid-19.

The 1.25% convertible notes rose about 4 points with stock up more than 5%.

The 1.25% notes traded up to 133.5 and were improved about 0.25 point dollar-neutral, a source said.

Southwest stock traded as high as $38.13, an increase of 4.75%, shortly before 11 a.m. ET.

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