Advanced Micro Devices, Inc. to Offer $1.8 Billion of Conver

Toggle sidebar Toggle sidebar
$1.8 billion aggregate principal amount of Convertible Senior Notes in a private offering to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended. Under certain circumstances, the notes are convertible into cash up to the principal amount and into shares of AMD’s common stock with respect to any conversion value above the principal amount.
Click to expand...
Someone put this in plain English please.
 
No,

AMD expects to use at least $500 million of the remaining net proceeds of the offering to repay a portion of the term loan AMD entered into with Morgan Stanley Senior Funding, Inc. to finance a portion of the purchase price of, and expenses related to, the acquisition of ATI Technologies Inc.
Click to expand...
 
Will this get them around having to give a very large chunk of it back to Morgan Stanley?
Click to expand...

Proceeds from the offering are expected to be used to pay off a portion of a term loan AMD entered into with Morgan Stanley Senior Funding, to finance part of its acquisition of ATI Technologies, and to pay the cost of the capped call transactions.
Click to expand...

http://biz.yahoo.com/ap/070423/amd_notes_offering.html?.v=1

Nope, they'll have to use most of the money to pay back their original debt to Morgan Stanley. It looks like they will end up with about $600Million in cash flow at the end of the day, and another $1.8billion in Debt.

Though I sure hope they pull it off, it seems like another shovel full of dirt from the grave, as they clearly demonstrated it only takes them one quarter to burn though $600M in cash (hi2u Q1'07).
 
Thanks - I didn't have time to read thru all of it - just sort of skimmed posted an ran...I can't see how this is a good thing for them...
 
Doesn't this screw existing AMD shareholders? 😱
Click to expand...
no

Not as simple as that vern.

By itself, yes it would screw existing stockholders, because since it is convertible debt, the owners could choose to convert them to shares of AMD, hence diluting existing shares. This is outside of the control of AMD once the debt is purchased.

However, AMD is also announced that they are using part of the money raised to keep existing shares from diluting through capped call transactions. Which basically reduces the usable cash AMD will get from this deal even more. They are basically keeping some of the cash aside to do stock repurchasing to keep the amount of floating public stock constant. The reason they announce this is so existing share holders don't dump their stock now, since they would otherwise be boned in the near future by people who don't necessarily have the long term health of AMD in their best interest.

AMD said it would enter into capped call transactions in connection with the offering, a move intended to reduce the potential dilution to common stockholders if the notes are converted into shares.
Click to expand...

The S&P did not like this move and just downgraded AMD's credit rating:

Earlier on Monday, credit ratings agency Standard & Poor's downgraded AMD to "B", it's fifth-highest "junk" grade, citing "subpar" execution of its business and a tougher business environment.
Click to expand...
 
Yeah, it is amazing the money games big corporations are allowed to play that us mere citizens could never ever get away with.

Here is a funny scenario that of course would never ever happen:

Intel uses it's 1Q07 profit ($1.9Billion) to fund a shadow "private" corporation who buys ALL of the debt AMD is selling and then immediately chooses to convert it to shares of AMD, hence forcing AMD to keep their word and float capped calls to reduce the large dilution of existing share holders.

Intel ends up with $1.8 Billion in undiluted AMD stock, and AMD is left with nearly none of the original $1.8 Billion it just borrowed, especially because it is forced by prior legal agreement to immediately pay $500 Million to Morgan Stanley who otherwise has them by the balls and could start forcing them to sell off capital to pay them back.

The government would, of course, not allow any such behavior from Intel, but it does put their relative financial strengths in perspective to think that Intel could use its _profits_ from one quarter of operation to put AMD out of business.
 
but thats an "IF Then" sceario which has got to meet eye to eye with primary shareholders and succumb to a dilution vote,its erroneous to assume its an instant tradeoff.
Click to expand...

Oh yes, I completely agree, it isn't an instant trade off.

It is a risk associated with the terms of the debt offering, and AMD is trying to make sure that existing shareholders aren't spooked by that risk by saying that some of the cash will be kept aside to repurchase shared so they don't get diluted.

Ninja, I'm not really one to make recommendations about the stock market, though I like to study how it works and understand as much as I can for my own purchasing decisions.

If you don't need the cash, and currently own some of AMD, I'd twiddle away for a while longer and see how things pan out. I don't currently own a position on AMD though.
 
Doesnt this screw existing AMD shareholders? 😱
Click to expand...
no

Sure it does. In several ways.

AMD, which already has a lot of debt, is taking on much more debt. Much more debt means it harder to ever get the company in the black.

Since S&P downgraded their credit rating again, and with a negative outlook, all that new debt is going to be at a very high interest rate indeed. Once again it will make it harder for AMD ever to get back into the black.

These bonds are gonna be a very hard sell, if they can be sold at all. Whoever is going to be doing the very hard work of persuading institutional investors to buy them sure ain't going to be doing it for free. Expect a 9 figure fee for the service.

If AMD does recover in spite of all this, convertable means major dilution if they company recovers and the stock starts to move up as bond holders convert their debt to shares.

Of course the alternative is a certain Chaper 11, and the stock going to zero. So I guess in that aspect it's certainly not screwing the existing shareholders.
 
http://today.reuters.com/news/articleinvesting.aspx?type=bondsNews&storyID=2007-04-23T222600Z_01_N23338706_RTRIDST_0_ADVANCEDMIRCO-UPDATE-1.XML
Reuters says $2.2B
Click to expand...

Ah, you are right, they updated the story:

AMD would offer an initial amount of $1.8 billion in notes, with the interest rate, conversion price and other terms to be determined in negotiations. Initial purchasers will also have the option of buying an additional $400 million of notes.
Click to expand...
 
....It looks like they will end up with about $600Million in cash flow at the end of the day, and another $1.8billion in Debt.....
Click to expand...
A nice round number like that almost sounds like a fab facility to me - - if AMD is going down they may as well try to do it with as much volume as they can . . .
 
] 1. Were not, when issued, of the same class as securities listed on a national securities exchange registered under section 6 of the Exchange Act or quoted in a U.S. automated inter-dealer quotation system; Provided, That securities that are convertible or exchangeable into securities so listed or quoted at the time of issuance and that had an effective conversion premium of less than 10 percent, shall be treated as securities of the class into which they are convertible or exchangeable; and that warrants that may be exercised for securities so listed or quoted at the time of issuance, for a period of less than 3 years from the date of issuance, or that had an effective exercise premium of less than 10 percent, shall be treated as securities of the class to be issued upon exercise; and Provided further, That the Commission may from time to time, taking into account then-existing market practices, designate additional securities and classes of securities that will not be deemed of the same class as securities listed on a national securities exchange or quoted in a U.S. automated inter-dealer quotation system; and

2. Are not securities of an open-end investment company, unit investment trust or face-amount certificate company that is or is required to be registered under section 8 of the Investment Company Act; and
Click to expand...

6). For purposes of this section, effective conversion premium means the amount, expressed as a percentage of the security's conversion value, by which the price at issuance of a convertible security exceeds its conversion value.
Click to expand...

This means on the day of the quote the conversion value must be than 10% above convertible instrument issued. This can give us a ball park figure for the conversion price of this debt. $1.8B/X = 0 < Conversion Price < 110% of value of the security it is to be converted into (in this case AMD stock). Today AMD closed at $14/share, so 14/1.1 = 12.72. Thus we get 0 < Conversion Price < 12.72 (assuming the debt was issued today). Now, 1.8B/12.72 = 141,509,433 and if they issued the other 400M that number goes up to 172,955,974 shares. Note: This is a very rough estimate designed to give shareholders an idea of how many potential shares could be issued.

Common stock, par value $0.01; 750 shares authorized; shares issued: 553 on December 31, 2006 and 442 on December 25, 2005; shares outstanding: 547
Click to expand...

Ever wonder why AMD needed the extra 750 million shares? Here is why. 553M shares issued + ~175M shares this debt is likely to be convertible into = 728M shares issued... getting real close to the legal limit.

Note: AMD will likely establish a higher conversion price than 12.72, but the aforementioned scenario is a worst case scenario (ignoring a tender offer).

I am working on the capped call transaction.

damn typo's, nothing big.
 
....It looks like they will end up with about $600Million in cash flow at the end of the day, and another $1.8billion in Debt.....
Click to expand...
A nice round number like that almost sounds like a fab facility to me - - if AMD is going down they may as well try to do it with as much volume as they can . . .

Very bad idea. AMD has a decent inventory turnover right now and is doing a moderate job in managing its level. They do not not need to piss away more cash and tying it up in inventory, it is best kept in cash form for OpEx purposes and helping AMD weather the rough seas until they can get R600 and Barcelona (and its respective derivatives) out the door.
 
After hours seems to have reacted to the news --- makes the rumor of courting a leveraged buy out less likely.
Click to expand...

Well the question becomes who are they placing the debt with. The requirement under rule 144A is that the debt be placed with qualified institutional buyers which include PE firms of sufficient size. AMD has also done this in the past. Also, the general market took a step back today and lost 42 points, not a big loss, but trading did take a hit around 1pm. Yes, there will be a sell off (of minor sorts) but I am betting those are the people who want to minimize their loss. Those with lower buy-ins will stick around and probably see where this capped call transaction leaves them.

Which incidentally is better than no deal for the shareholders. A capped call is a traditional call plus a profit margin, so in a rough sense the call automatically executes once the stock rises above a specified price. In essence this stipulation is designed to minimize the impact on Earnings Per Share (there no dilutive effect on negative EPS). It will be interesting to see how this plays out.

I am going to go play C & C 3.... just got it. 😀
 
When did their credit rating get downgraded, I missed that one:

However news of the offering comes after Standard & Poor's downgraded AMD's credit rating Monday to "B," its fifth-highest junk rating, making the additional debt more expensive.
Click to expand...

http://www.forbes.com/2007/04/23/AMD-debt-offering-tech--intel-cx_bc_0423techamd.html?partner=msn

I think it was downgraded to the highest level of junk rating after their press release. I am pretty sure S&P that their finger poised to down grade it and were just waiting for a deb announcement to do. I am not entirely surprised. :?

I bet the interest rate on this debt gets very close to 10%...
 
AMD has a decent inventory turnover right now and is doing a moderate job in managing its level.
Click to expand...
No so sure about that . . . AMD inventory is at its highest level since the *heydays* of 2005. Beyond question their sales have slowed. The question in my mind is just what that inventory consists of . . .

They do not not need to piss away more cash and tying it up in inventory
Click to expand...

How long do you think it takes to renovate a FAB facility ??? When taken in consideration with the **high inventory** AMD will not be sustainable making 90 nm Santa Ana's & Windsor's - when the Intel roadmap envisions 45nm in 2007 (and AMD's 45nm roadmap is mid-2008). Anyway you cut it that's 2X the die per wafer . . .

. . . it is best kept in cash form for OpEx purposes and helping AMD weather the rough seas until they can get R600 and Barcelona (and its respective derivatives) out the door.
Click to expand...

If they can't get the 65nm Brisbanes and Lima's out the door how will all that *operating cash* help get Barcelona out the door??? Do you not borrow money for physical plant??? FABS . . . man . . . FABS

and AMD + AMAT = FABS !!!

:)
 
You must log in or register to reply here.

TRENDING THREADS

Latest posts

Moderators online

Share this page

COMPANY
RESOURCES
FOLLOW
Top Bottom