Upsized FireEye tranches rise in active trade; Alpha Natural slides; Atlas Air on deck

By Rebecca Melvin

New York, May 28 – FireEye Inc.’s upsized $800 million of 20-year convertible senior notes traded actively on their debut Thursday, with both tranches quoted up to around 104.5 out of the chute after the deals priced at rich end of revised coupon talk and at the rich end of premium talk.

Ahead of the market open, both the FireEye 1% convertibles and the FireEye 1.625% bonds traded at about 104.5. After the market open, with shares up at $45.90, the bonds traded in the 104.5 bid, 105 offered range, a New York-based trader said.

The new deals traded on heavy volume, providing the centerpiece of action in the convertibles space on Thursday.

Also in the primary arena, Atlas Air Worldwide Holdings Inc. was expected to price $200 million of seven-year convertible notes after the market close. That deal was talked to yield 2.25% to 2.75% with an initial conversion premium of 27.5% to 32.5%.

Back in established issues, Alpha Natural Resources Inc.’s 3.75% convertibles due December 2017, slumped further to the 18.5 level from the low to mid 20s as concerns continue to grip the overall coal sector and ahead of a coupon due on Alpha Natural straight bonds on Monday, a Connecticut-based trader said.

“I don’t know if there is any fear [related to the coupon],” the trader said. “The whole sector is struggling. It’s a one-way trade, and it’s going down.”

Alpha Natural, a coal producer based in Abingdon Va., priced $350 million of the 3.75% convertibles in May 2013.

Workday Inc.’s convertibles extended outright losses on Thursday, dropping another nearly 2 points on the Workday 0.75% convertibles to 116.4. The move came a day after the securities of the Pleasanton, Calif.-based cloud-based computing company posted declines on first-quarter earnings that were better than expected but revealed moderating growth.

New FireEye bonds ‘fly’

FireEye’s 1% series A convertibles were seen last at about 104 with the underlying shares up about 3%. They were also quoted higher at 104.5, and they changed hands at 103.25, according to Trace data.

The FireEye 1.625%, B series convertibles were last seen around 104 with the shares up 3%, and they were seen quoted on Trace at 104.5.

“The FEYE bonds are flying,” a New York-based trader said. And a syndicate source said they richened on a swap basis.

The two bonds accounted for the majority of the day’s trading action, according to Trace data, and the 1% convertibles, which are callable and putable in five years, were more active than the 1.625% convertibles, which are essentially seven-year paper. They were trading about 1.5 times the 1.625% bonds, trader said.

FireEye priced an upsized $800 million of 20-year convertible senior notes in two tranches, including $400 million of 1% series A notes and $400 million of 1.625% series B notes, both with an initial conversion premium of 35%, according to market sources.

The Rule 144A deal has an over-allotment option for up to $120 million of additional notes, divided evenly between the tranches. The greenshoe was upsized from $90 million.

Pricing came at the rich end of talk, which was revised tighter for the coupon during marketing.

The series A notes priced at the rich end of 1% to 1.25% coupon talk, which was tightened from 1.25% to 1.75% initially; and the series B notes priced at the rich end of 1.625% to 1.75% coupon talk, which was revised tighter from 1.75% to 2.25%. The initial conversion premium was talked at 30% to 35% and was not revised during marketing.

The A notes are non-callable until June 1, 2020 with puts in years five, 10 and 15.

The B notes are non-callable for five years and then provisionally callable for two years if shares exceed 130% of the conversion price. After that they become freely convertible. If the notes are converted within the two-year provisional period, there is a make whole table for interest payments.

The B notes have puts in years seven, 10 and 15.

Morgan Stanley & Co. LLC, J.P. Morgan Securities LLC and Nomura Securities Co. Ltd. were joint bookrunners of the deal.

Even though the two bonds mature in 2035 they can be looked at as five-year and seven-year paper, a syndicate source said.

There was an economic benefit to structuring the deal like this rather than to do simply five-year and seven-year bullets, a syndicate source said.

In addition to structuring the two tranches as 20-year paper officially, the company also did a forward stock purchase deal rather than a call spread, which has been favored by many issuers lately.

The deal was very successful from the perspective of both the issuer and the investors, a syndicate source said. It was many times oversubscribed with good participation from both outrights and hedged players.

“You would do well owning this growth story,” he said.

Mentioned in this article:

Alpha Natural Resources Inc. NYSE: ANR

Atlas Air Worldwide Holdings Inc. Nasdaq: AAWW

FireEye Inc. Nasdaq: FEYE

Workday Inc. Nasdaq: WDAY

© 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.