Morning Commentary: FireEye’s $600 million in two tranches looks cheap, sources say; Workday lower

By Rebecca Melvin

New York, May 27 – FireEye Inc.’s planned $600 million of 20-year convertible senior notes in two tranches were looking attractive to investors ahead of pricing expected after the market close on Wednesday. The deals were looking so cheap, in fact, that market sources expected the deals would be re-priced to take away some of that cheapness before final terms were actually set.

Using a credit spread of 400 basis points over Libor and a 38% vol. at the midpoint of talk, the As looked fair value at 104.7, a Connecticut-based trader said.

The As were talked at a 1.25% to 1.75% coupon and 30% to 35% initial conversion premium.

The Bs were seen at fair value at 105.6 using a credit spread of 425 bps and 38% vol. at the midpoint of price talk. The Bs were talked at a 1.75% to 2.25% coupon with the same 30% to 35% premium.

“They model cheap and my guess is that it gets re-priced,” the trader said.

Elsewhere, Workday Inc.’s convertibles were trading lower on an outright basis but appeared to be a bit better on swap after the Pleasanton, Calif.-based cloud-based computing company posted first-quarter earnings that were better than expected but revealed moderating growth. Shares sank 11% early Wednesday.

Workday’s 0.75% convertibles due 2018 traded down 7 points on an outright basis to 119.5, according to Trace data. The Workday 1.5% convertibles due 2020 traded down at 124.125.

Workday shares were down $10.19, or 11%, at $82.30.

One source, who wasn’t trading the name, said that it looked to have improved on a swap basis by about 0.75 point.

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