Morning Commentary: Convertibles market eyes Square, Envestnet; FireEye, NRG Energy debut

By Abigail W. Adams

Portland, Me., May 22 – The convertibles primary market has been in high gear with a flood of new paper hitting the secondary space on Tuesday and more to come on Wednesday.

New convertible notes from FireEye Inc. and NRG Energy Inc. hit the secondary market on Tuesday and dominated trading activity.

FireEye’s new 0.875% notes due 2024 “traded a little sloppy” and dropped below par out of the gate, a market source said.

NRG Energy’s new 2.75% notes due 2048 started strong out of the gate but dropped to just above par early in the session, a market source said.

Envestnet Inc. plans to price a $300 million offering and Square Inc. plans to price a $750 million offering after the market close on Tuesday. Square “has all the numbers,” and the offering looked 0.5 point rich at the midpoint of talk, sources said.

New deals

Square plans to price $750 million of five-year convertible notes after the market close on Tuesday with price talk for a coupon of 0% to 0.5% and an initial conversion premium of 42.5% to 47.5%.

The deal is being marketed with a credit spread of 175 basis points over Libor and a 42% vol., a market source said.

The deal models about 0.5 point rich at the midpoint of talk, a market source said.

The company’s credit spread is well deserved, another source said. “This company has a lot of dynamics. In terms of cash, EBITDA, market cap, it has all the numbers,” a source said.

The low coupon and high premium are unappealing at face value, a market source said.

However, Square’s outstanding 0.375% convertible notes due 2022 were one of the outperformers of 2017. The 0.375% notes now trade well above double par with the notes seen trading in mid-March up to 242, according to Trace data.

Envestnet plans to price $300 million of five-year convertible notes after the market close on Tuesday with price talk for a coupon of 1.25% to 1.75% and an initial conversion premium of 30% to 35%.

FireEye’s deal

FireEye priced $525 million of six-year convertible notes after the market close on Monday with a coupon of 0.875% and an initial conversion premium of 35%.

Pricing came toward the cheap end of talk for a coupon of 0.5% to 1% and at the cheap end of talk for an initial conversion premium of 35% to 40%, according to a market source.

The new 0.875% notes “traded a little sloppy” on their debut, a market source said. They were seen at 99.75 bid, 100.125 offered pre-open but traded down to 99 with the stock off 1% early in the session, a market source said.

The notes were largely trading in line dollar neutral.

They have a theoretical delta of 70% but will likely trade a little lighter, a source said.

Approximately $340.2 million of the proceeds from the new offering will be used to repurchase the Milpitas, Calif.-based cybersecurity company’s outstanding 1% convertible notes due 2035.

Some of the 1% notes appeared to be repurchased early Tuesday with several trades at 97, a market source said.

NRG Energy

NRG Energy sold $500 million of 30-year convertible notes after the market close on Monday with a coupon of 2.75% and an initial conversion premium of 42.5%.

Pricing came at the cheap end of talk for a coupon of 2.25% to 2.75% and at the midpoint of talk for an initial conversion premium of 40% to 45%, according to a market source.

The notes “started strong but whittled down,” a market source said early in the session. The notes were seen between 100.5 to 101 but soon dropped down to just above par.

NRG stock was up soon after the opening bell but dropped slightly early in the session. The notes appeared to be moving on a 65% delta, a market source said.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.