FireEye’s deals look cheap ahead of final terms; Atlas Air deal launches; Workday drops

By Rebecca Melvin

New York, May 27 – FireEye Inc.’s $600 million of 20-year convertible senior notes were looking attractive at talked terms on Wednesday ahead of final pricing expected to be fixed after the market close.

The FireEye series A convertibles were talked at a 1.25% to 1.75% coupon, and the FireEye series B convertibles were talked at a 1.75% to 2.25% coupon, with a 30% to 35% initial conversion premium for both tranches.

Also in the primary market, Atlas Air Worldwide Holdings Inc. launched a $200 million offering of seven-year convertible notes that was talked to yield 2.25% to 2.75% with an initial conversion premium of 27.5% to 32.5%. Final terms were expected to be fixed late Thursday.

Back in established issues, Workday Inc.’s convertibles traded 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 that sank shares by 11%.

The Workday convertibles’ performance was dependent on delta, but one source said they looked better by about 0.75 point on swap.

Nortel Networks Corp.’s convertibles were in trade again as has been the case since judges in the company’s U.S. and Canadian bankruptcy cases opted to craft a distribution plan of their own in regards to about $7.3 billion in cash.

In early Wednesday trades, the Nortel 2.125% convertible notes that came due in 2014 changed hands at 86.25, which was higher compared to 85 to 85.25 on Tuesday, according to Trace data.

The Nortel 1.75% convertible notes that should have matured in 2012 were up 0.25 point at 85.75.

FireEye looks cheap

FireEye’s planned $600 million in two tranches were heard initially at terms that were deemed so cheap that market players said they 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.

Syndicate sources could not be reached by Prospect News’ deadline regarding possible repricing.

Atlas Air on tap

Atlas Air, a Purchase, N.Y.-based provider of outsourced aircraft and aviation operating services, said it plans to price $200 million of seven-year convertible notes.

Market sources said the deal was talked at a coupon of 2.25% to 2.75% with an initial conversion premium of 27.5% to 32.5% and was expected to price Thursday.

Joint bookrunners were Morgan Stanley & Co. International and BNP Paribas along with Credit Agricole as a joint lead manager and BB&T, FBR Capital Markets, Sidoti & Co. and Stephens as co-managers.

The registered deal has a $30 million greenshoe and is non-callable for life with no puts. There is full dividend protection in the form of a conversion ratio adjustment.

In connection with the pricing of the notes, Atlas Air plans to enter into convertible note hedge and warrant transactions, or a call spread.

Proceeds are intended primarily to refinance certain equipment notes funded by Enhanced Equipment Trust Certificates related to five Boeing 747-400 freighter aircraft. In addition, the company plans to use a portion of proceeds to fund the net cost of the call spread, for working capital and capital expenditures, for repayment or refinancing of debt and for general corporate purposes.

Workday lower outright

Early in the session, the Workday 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.

At the end of the session, the Workday As were quoted down at 118 bid, 118.75 offered, and the Workday Bs were seen down at 122 bid, 123 offered.

Workday shares ended down $10.49, or 11%, at $82.00.

Shares were pounded on much heavier-than-average volume.

One source, who wasn’t trading the name, said that it looked to have improved on a swap basis by about 0.75 point when the bonds were at the high end of the day’s range.

The slide occurred despite earnings that beat estimates and an outlook that was in line, although at the low end.

Mentioned in this article:

Atlas Air Worldwide Holdings Inc. Nasdaq: AAWW

FireEye Inc. Nasdaq: FEYE

Nortel Networks Corp. OTC: NRTLQ

Workday Inc. Nasdaq: WDAY

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