K12 convertible notes price, trade up on debut; Southwest, American Airlines active

By Abigail W. Adams

Portland, Me., Aug. 27 – The convertibles primary market pumped out the last new deal of the week with K12 Inc. pricing 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.

K12’s new convertible notes were in focus in the secondary space on Thursday and were making large gains on an outright and dollar-neutral basis.

Several other recent deals remained active, including NICE Ltd.’s 0% convertible notes due 2025, which were improving dollar-neutral.

Envestnet Inc.’s 0.75% convertible notes due 2025 were once again in the spotlight with the issue a potential addition to the Refinitiv Convertible Indices.

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

Equity markets were volatile following Federal Reserve chairman Jerome Powell’s speech with the Nasdaq wavering between gains and losses.

However, news of Abbott’s new rapid test for Covid-19 was a boon for the travel and entertainment sectors, whose equity was rallying in response to the news, a source said.

Southwest Airlines Co.’s 1.25% convertibles due 2025 and American Airlines Group Inc.’s 6.5% convertible notes due 2025 were among the benefactors with both issues making gains in active trading.

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 in active trading.

The 1.125% notes traded as high as 103.5 early in the session but came in as stock continued to trend lower.

The notes were marked at 101.75 bid, 102.75 offered in the late afternoon. They expanded 2.5 points dollar-neutral, a source said.

K12’s stock traded to a high of $39.13 and a low of $36.79 before closing the day at $37.70, a decrease of 3.75%.

Recent deals

Several recent deals remained active in the secondary space.

After a rough start in the secondary space, NICE’s new 0% convertible notes due 2025 were improving dollar-neutral.

The notes rose to 102.75 in the late afternoon and expanded 0.25 point dollar-neutral, a source said.

There was more than $16 million on the tape by the late afternoon.

NICE’s stock traded to a high of $238.35 and a low of $233.69 before closing the day largely flat at $235.81, a decrease of 0.089%.

While improved on Thursday, the notes remain contracted since pricing.

Envestnet’s 0.75% convertible notes due 2025 also saw renewed attention with the notes hitting their highest outright level since their secondary market debut on Aug. 18.

The 0.75% notes traded up to 105.625 late Thursday afternoon with about $11.5 million in reported volume.

Envestnet’s stock traded to a high of $84.14 and a low of $82.43 before closing the day at $83.18, a decrease of 0.17%.

Both NICE’s 0% convertible notes due 2025 and Envestnet’s 0.75% convertible notes due 2025 are potential additions to Refinitiv Convertible Indices.

Envestnet’s convertible notes will be reviewed for addition on Sept. 1, and NICE’s convertible notes are currently being monitored for a potential addition.

Airlines improve

The travel and entertainment sectors were rallying on Thursday following the Food and Drug Administration’s approval of Abbott’s 15-minute Covid-19 test.

Both Southwest Airlines’ 1.25% convertible notes due 2025 and American Airlines’ 6.5% convertible notes due 2025 were among the benefactors of the news.

Southwest’s 1.25% convertible notes rose about 4 points outright with stock up more than 5% early in the session.

While they came in slight as the session progressed, the 1.25% notes continued to trade near their all-time highs, a source said.

They were changing hands at 132.25 in the late afternoon and were improved 0.25 point dollar-neutral, sources said.

Southwest’s stock traded to a high of $38.88 and a low of $37.31 before closing the day at $37.65, an increase of 3.49%.

American Airlines’ 6.5% convertible notes due 2025 popped above par in intraday activity.

However, they came in alongside stock as the session progressed and were again on a 97-handle heading into the market close.

While the notes closed the day below par, they were improved dollar-neutral, a source said.

American Airlines’ stock traded to a high of $14.26 and a low of $13.12 before closing the day at $13.27, an increase of 3.79%.

Mentioned in this article:

American Airlines Group Inc. Nasdaq: AAL

Envestnet Inc. NYSE: ENV

K12 Inc. NYSE: LRN

NICE Ltd. Nasdaq: NICE

Southwest Airlines Co. NYSE: LUV

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