AMD Financing Terms: Even Stranger Than Expected (AMD)
05-01-2007 11:32:34 AM
Advanced Micro Devices (NYSE: AMD) made its 8-K filing last night that discloses more of the terms and conditions of what we called a "Voodoo Financing" regarding the $2.2 billion convertible note sale that AMD made last week. We strongly encourage you to read through the full SEC FILING because we have only addressed the parts in summary. Moody's did raise the company's debt ratings yesterday, but if you go in and look at the summary of the call, that really pertains to prior debt offerings and the outlook remains "negative."
The terms for last week's offering are for $2.2 Billion aggregate of 6.00% Convertible Senior Notes due 2015 via private placement and interest is payable on May 1 and November 1 of each year beginning November 1, 2007 until the maturity date of May 1, 2015. As far as this being straight forward on the surface, it stops right there. This offering has triggers and conditions that make you wonder why one would buy this offering and why the shareholders haven?t raised the dead to fight it.
The Company used approximately $182 million of the net proceeds to pay the cost of the Capped Call and paid $500 million of the remaining net proceeds to repay a portion of the October 2006 Term Loan (to Morgan Stanley for financing part of the ATI purchase). The Company expects to use the remaining amount for general corporate purposes, including working capital and capital expenditures. The company paid $182 million for the Capped Call initial strike price of $28.08 per share, subject to certain adjustments, which matches the initial conversion price of the notes, and a cap price of $42.12 per share.
The company has also entered into a registration agreement with Morgan Stanley where AMD agrees to file a shelf registration statement ?as soon as practicable? but no later than July 26, 2007 (only 90 days away) and to make the registration to be declared effective ?as promptly as practicable? but no later than October 24, 2007 (6 months).
It goes even further: If the Company does not meet these deadlines then, subject to certain exceptions, additional interest will accrue on the Notes to be paid semi-annually in arrears at a rate per year equal to 0.25% of the principal amount of Notes to and including the 90th day following such registration default, or 0.50% of the principal amount thereafter, for the period during which the registration default is not cured. In no event will such additional interest accrue at a rate per year exceeding 0.50%.
The world must be awash in liquidity. There is a ?item 2.03 Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant???? In short, the world is back to ?off-balance sheet? arrangements. This drives GAAP watchers nuts, and if the company experiences further problems this will be referred back to over and over.
The conversion rate will be adjusted for certain anti-dilution events; the conversion rate will be increased in the case of corporate events that constitute a fundamental change of AMD under certain circumstances (change of controlling interest); Note-holders may require AMD to repurchase the Notes for cash equal to 100% of the principal amount to be repurchased plus accrued and unpaid interest upon the occurrence of a fundamental change or a termination of trading; Notes rank equally with AMD?s existing and future senior debt and senior to all of its future subordinated debt; Notes rank junior to all of AMD?s existing and future senior secured debt to the extent of the collateral securing such debt and are structurally subordinated to all existing and future debt and liabilities of its subsidiaries.
We encourage you to read the full SEC filing and the ?events of default? because this really allows for what could be interpreted as a noose for shareholders who have been getting kicked while they are down.
The investment bankers were probably laughing over and over on this one. It is a true voodoo financing and one reminiscent of past blow-ups. We aren?t just trying to kick the company while it is down, but this one takes the cake. It really must be true that the more things change, the more they remain the same.
Shares are down 2% today to $13.54 and are all the way right back down to levels right before this financing was announced (and priced the following morning). A conspiracy theorist would probably say that the financing was to try to wrestle control or to further hold AMD hostage if things don?t get better. We?ll stop short of that because it is just a head-scratcher all the way.
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