New Atlas Air slips below par with lower shares, unchanged on swap; FireEye trades in line

By Rebecca Melvin

New York, May 29 – Atlas Air Worldwide Holdings Inc.’s new 2.25% convertibles slipped below par on their debut in the secondary market on Friday after the Purchase, N.Y.-based outsourced aircraft and aviation services company priced $200 million of the seven-year notes at the rich end of talked terms, market sources said.

The new Atlas Air convertibles were 99.5 bid, 100 offered with the stock at around $55.40, a Connecticut-based trader said. They were essentially unchanged on a swap basis.

The new bond accounted for the majority of Friday’s convertibles trading volume, a New York-based trader said.

FireEye Inc.’s two $460 million deals, which debuted in the market on Thursday, were trading actively and “better to buy,” as market players topped up on Thursday’s allocations. The volume wasn’t impressive, however, and those bonds were little changed, or in line, versus the underlying shares, sources said.

The FireEye bonds include a combined $120 million resulting from the deals’ fully exercised greenshoes.

Tesla Motors Inc. was also a name in trade on Friday with the underlying shares of the Palo Alto, Calif.-based electric car maker a bit weaker.

Otherwise the session was quiet heading into the weekend after the holiday-shortened week.

In the broader markets, equities were down. That can often have a dampening effect on convertibles, but increased volatility should also increase demand for convertibles, a New York-based trader noted.

Equities were weighed down by weak economic data. The U.S. Commerce Department’s latest reading of first-quarter U.S. gross domestic product was revised lower, showing a contraction at a 0.7% annual rate, down from the 0.2% growth pace estimated last month.

The major averages were down by nearly 1% before paring losses in the final hour of trading. The Dow Jones industrial average ended down 115.44 points, or 0.6%, at 18,010.68. That was better than the 140 points, or 0.8% decline at late morning.

The S&P 500 stock index ended down 13.40 points, or 0.6%, to 2,107.39, and the Nasdaq stock market was down 27.95 points, or 0.6% at 5,070.03.

Primary looks ‘pretty strong’

The U.S. convertibles primary market saw a pretty strong May, with things looking positive for healthy issuance in June, market sources said.

“The market feels very strong right now. There have been a lot of deals, and they have traded well, with FireEye, in particular, trading well,” a New York-based syndicate source said.

The syndicate source said he expected a few more chunky deals, but not a month’s worth of heavy activity. However, he noted that convertibles deals typically come together quickly, and there is not a lot of visibility two or three weeks ahead of schedule how the pipeline is going to shake out.

The investment community’s currently receptive stance bodes well for issuance, he said.

The current trend became evident with the $230 million Echo Global Logistics Inc. deal that priced April 29, he said.

“What is happening is that in March and April we didn’t see a lot of issuance, and I think investors were pretty surprised by that; so that when the next wave of transactions came, starting with the Echo Global transaction, they were interested,” the source said.

“Deals lately have been oversubscribed with all pockets of investors showing interest, including both the hedged and outright communities,” the syndicate source said.

With these latest transactions, “we’ve seen a lot of demand with investors eager to apply capital,” he said.

Looking ahead to June, the source said, “We’ll see large transactions here and there.”

A good amount of this year’s new issuance so far has been in the form of mandatory convertible paper like preferred shares and units. By and large, these deals are transaction- or event-driven, and are related to the issuer seeking more equity-like paper.

“More equity-like deals is linked to trends like M&A,” he said.

New Atlas flat on swap

Atlas Air’s new 2.25% convertibles due 2022 traded ahead of the market open on Friday at 100 bid, 100.5 offered, according to a syndicate source. But once the market opened and shares were lower, the paper slipped below par to about 99.5 bid, 100 offered versus shares that were down around 1%.

“It was a little below par, which was to be expected,” a source said.

Atlas Air shares were last down 59 cents, or 1%, at $55.30.

Atlas Air priced $200 million of seven-year convertible notes at par of $100.00 to yield 2.25% with an initial conversion premium of 32.5%.

Pricing of the registered deal came at the rich end of talk for a 2.25% to 2.75% coupon and 27.5% to 32.5% premium.

Morgan Stanley & Co. Ltd. and BNP Paribas Securities Corp. were joint bookrunners with Credit Agricole Securities (USA) Inc. as lead manager, and BB&T Capital Markets, CJS Securities Inc., FBR Capital Markets & Co. and Sidoti & Co. LLC as co-managers.

The notes are non-callable for life with no puts. There is takeover protection with a make-whole payment and full dividend protection in the form of a conversion ratio adjustment. There is also net-share settlement.

In connection with the pricing of the notes, Atlas Air entered into convertible note hedge and warrant transactions, or a call spread with option counterparties Morgan Stanley & Co. International plc and BNP Paribas. The strike on the warrant transactions is $95.01, which boosts the initial conversion premium from the issuer’s perspective to 70%.

Proceeds will be used 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 call spread, and for working capital and capital expenditures, repayment or refinancing of debt and for general corporate purposes.

FireEye tranches in line

FireEye’s 1% series A and 1.625% series B convertibles were seen around 105 late Friday with the underlying shares of the company down 27 cents, or 0.6%, at $46.54.

That level was seen in line, or unchanged, compared to where the paper went out Thursday, which was 105.5 versus the closing stock level of $46.82, a market source said.

Mentioned in this article:

Atlas Air Worldwide Holdings Inc. Nasdaq: AAWW

FireEye Inc. Nasdaq: FEYE

Tesla Motors Inc. Nasdaq: TSLA

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