AMD to Raise $2 Billion in Debt to Pay for ATI
Last week, during its quarterly analysts' conference call, AMD announced it would undergo perhaps the most sizable restructuring in the company's history, and may take drastic measures along the way to heal the wounds to its financial structure.
Executives said we'd learn what some of those measures would be soon after they decided themselves. Today, we know one thing more than we knew last week: The company plans to raise about $2 billion in debt through the offering of convertible notes.
Essentially, these are bonds offered to institutional buyers - not your average shareholder, but to financial institutions willing to gamble that AMD will make good on its debt as the years go by. Raising this kind and this level of debt may be a good sign: that the company intends on sticking around, and is willing to bet its good name on that forecast.
Convertible notes pay interest; in this case, they'll pay semi-annually at a rate of 6% per year. At certain points, holders will have the option of converting their holdings to cash or to common stock, giving AMD two ways to pay off this debt in the future.
As of yesterday, AMD's common stock was priced at $14.04 per share. These notes' initial conversion price will be $28.08 per share - a 100% premium on its current stock price. It's a serious bet.
In case AMD makes it out of its current financial hole with flying colors, it's left itself a way to cut its losses for having succeeded: It's entering into what's called a capped call transaction, which would effectively force note holders to convert if stock value reached $42.12.
In keeping with the spirit of transparency CEO Hector Ruiz and others displayed on Thursday, AMD said this morning it intends to use $500 of the amount it raises through notes offerings to pay down the loans it secured from Morgan Stanley to acquire ATI.