Here's my explanation of the 11% note tender offer.
The notes are callable by AMD with no recourse by the seller in 13 months anyway (according to Albert). There's probably a premium AMD has to pay to call the bonds then. (Maybe they have to pay $1,050 for every $1,000 bond.)
Any company which isn't in a cash bind would retire an 11% interest bond when interest rates are < 7% in the corporate market, therefore all the bond holders are assuming AMD will call the bonds in 2001.
So AMD is trying to call the bonds early, by offering a *little bit* of extra "return to maturity" to the bondholders.
Why?
AMD will realize a capital loss in Q2'2000 by paying for tendered bonds, hopefully most of them.
The capital loss will
1. Reduce taxes paid for Q3. (good)
2. Offset and slightly reduce the one time capital gain AMD will report Q3 for sale of the COMM division. This is a neutral thing, because analysts generally ignore one time gains. (he, he, except for Intel, he, he)
The big benefit to getting rid of these is
3. An increase in earnings per share for the next 4 quarters of 0.03 to 0.04 per share. (very good) This is because AMD's interest expense will go down by $11M per quarter immediately. Of course, they'll lose $400M in cash, which would probably earn $5M per quarter in interest income, but thats already taken into account in the 0.03 to 0.04 number above.
So basically, AMD takes a capital loss when it will be ignored next to a big capital gain, and benefits for the next four quarters by increased earnings.
EDIT - it also sends a message to the capital markets that AMD HAS PLENTY OF MONEY. And it will tend to lower interest rates on its remaining outstanding debt or new debt it may want to finance.
Petz |
