Global Payments convertibles oversubscribed; high-grade names weaken; DraftKings active

By Abigail W. Adams

Portland, Me., Feb. 20 – The convertibles primary market returned to action on Tuesday after a more than two-week hiatus with a sizable offering on deck.

Global Payments Inc. plans to price $1.75 billion of seven-year convertible notes (Baa3/BBB-/BBB) after the market close on Tuesday.

The offering looked cheap based on underwriters’ assumptions and played to heavy demand with the investment-grade rating from the payment technology company a boon for the market.

Sources have long been hopeful for some diversification in the wave of investment-grade issuance, which has largely been relegated to energy and utility companies.

The primary market launched the week strong and the activity is expected to continue with more announcements anticipated before the holiday-truncated week draws to a close.

Meanwhile, it was a relatively active day in the secondary space despite a red day for equity markets.

The Dow Jones industrial average closed Tuesday down 64 points, or 0.17%, the S&P 500 index closed down 0.60%, the Nasdaq Composite index closed down 0.92% and the Russell 2000 index closed down 1.41%.

There was $481 million in reported convertibles trading volume in the late afternoon with high-grade names dominating the tape.

American Water Capital Corp.’s 3.625% exchangeable senior notes due 2026 (Baa1/A), CMS Energy Corp.’s 3.375% convertible notes due 2028 (Baa2), Duke Energy Corp.’s 4.125% convertible notes due 2026 (Baa2/BBB) and Southern Co.’s 3.875% convertible notes due 2025 (Baa2/BBB) saw heavy trading on Tuesday.

The notes were weaker across the board as accounts made room for the new paper in the works.

DraftKings Inc.’s 0% convertible notes due 2028 remained in focus with the notes moving lower alongside stock as the market further digested the company’s earnings and acquisition news.

Notes oversubscribed

Global Payments plans to price $1.75 billion of seven-year convertible notes (Baa3/BBB-/BBB) after the market close on Tuesday with price talk for a coupon of 1.5% to 2% and an initial conversion premium of 17.5% to 22.5%.

The deal was heard to be in the market with assumptions of 160 basis points over SOFR and a 27% vol.

Using those assumptions, the deal looked about 3 points cheap at the midpoint of talk, a source said.

The offering looked attractive and played to heavy demand from both outright and hedge accounts with the books multiple times oversubscribed, a source said.

The heavy demand was expected with the fintech company offering convertible notes with an investment-grade rating.

Sources have long hoped the wave of high-grade issuance that has largely been from utility and energy companies would attract high-grade names from other sectors.

The offering was a good sign for the market, sources said.

The deal was heard to be pricing at the rich end of talk with a coupon of 1.5% and at the midpoint of talk with an initial conversion premium of 20%.

High-grade names weaken

High-grade names led trading on Tuesday with the issues weaker across the board as accounts made room for new paper from Global Payments, a source said.

American Water’s 3.625% exchangeable notes due 2026 were changing hands at 97.875 in the late afternoon, according to a market source.

There was $27 million in reported volume.

American Water’s stock traded to a high of $123.22 and a low of $120.49 before closing at $121.16, a decrease of 1.35%.

CMS Energy’s 3.375% convertible notes due 2028 were seen at 97.625.

There was $25 million in reported volume.

CMS Energy’s stock traded to a high of $58.01 and a low of $56.92 before closing at $57.03, off 0.42%.

Duke Energy’s 4.125% convertible notes due 2026 were trading just north of 98.375 in the late afternoon.

There was $15 million in reported volume.

Duke Energy’s stock traded to a high of $92.78 and a low of $91.51 before closing at $91.94, up 0.065%.

Southern Co.’s 3.875% convertible notes due 2025 were changing hands at 98.25.

There was $16 million in reported volume.

Southern Co.’s stock traded to a high of $68.34 and a low of $66.43 before closing at $67.04, up 0.84%.

DraftKings eyed

Market players continued to eye DraftKings’ 0% convertible notes due 2028 after the company’s earnings report and announced acquisition on Friday.

The 0% notes were lower alongside stock although they were moving in line dollar-neutral, a source said.

The notes were down about 1.5 points outright to trade at 84.625 in the late afternoon.

DraftKings’ stock traded to a high of $44.12 and a low of $40.95 before closing at $41.32, down 7.29%.

While stock also sank in intraday activity on Friday, it closed the day with nominal gains.

DraftKings reported mixed earnings on Friday with a top line miss but a bottom line beat.

The company reported earnings per share of 29 cents versus analyst expectations for earnings of 18 cents.

Revenue was $1.23 billion versus analyst expectations for revenue of $1.24 billion.

The company also issued strong guidance.

DraftKings also announced it would acquire lottery app Jackpocket for $750 million in a cash and stock transaction.

DraftKings will pay $412.5 million in cash and $337.5 million in stock with the acquisition set to close in the second half of 2024.

Mentioned in this article:

American Water Works Co., Inc. NYSE: AWK

CMS Energy Corp. NYSE: CMS

DraftKings Inc. Nasdaq: DKNG

Duke Energy Corp. NYSE: DUK

Global Payments Inc. NYSE: GPN

Southern Co. NYSE: SO

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