Can anybody explain in plain English what a convertible subordinated note is?
A bond that is convertible to stock a price specified in the prospectus (in this case roughly $24) that is subordinate to operating obligations and higher senior debt holders but ahead of stockholders'.
What are the benefits to those who buy them?
It's like buying a bond with a call option. The benefit is that if you buy this bond you get a 3.75% yield and if the stock price increases above the conversion price you can convert to equity (i.e. exercise the call option portion of the bond).
What are the benefits to WIND, cash?
The benefit to WIND is that it can use the proceeds to pay off the existing convertible bonds issued in August of 1997 or for working capital and acquisitions. As for an existing shareholder, they isn't a benefit other than they don't default on the previous issue. On the contrary, WIND is selling equity at $24 a share thus diluting existing stockholders' at a price much lower than the stock traded in the last 5 years (except the last 7 - 9 months).
Does WIND really need more cash. At quarter close it had 247 million in cash?
No, WIND had roughly $93.5 million in cash & equiv and Short-term investments. Some cash, it appears, was used during the last quarter to pay-down some of the convertible issue as $64.5 of the original $140 was still outstanding (convert is now shown as a current liability).
What might WIND do with the cash, acquisitions?
Yes, this is what a PR piece stated . . .
The company intends to use the net proceeds of the offering for general corporate purposes, including working capital, payment of existing indebtedness and potential acquisitions.
That's what they did with the first convertible issue, minus the paydown of existing indebtedness) and we all know acquisition prices are now much, much more reasonable. I believe WIND is issuing $125 million in convertible bonds. That amount minus the $64.5 million of the previous issue outstanding plus $93.5 million in cash will leave WIND with $154 million in cash & equiv. and short-term investments.
In short, to me at least, this looks great if you in management and want some pocket money to "pick up a few things" in the market but it looks like another rotten deal for existing shareholders. It pains me to say that as this is largest and longest held position in my portfolio. I think the technology is first rate. However, the financial management is definitely second rate. I don't think the stock traded much above the conversion price of the previous convertible issue (to lazy to check right now) and when it did, it was brief.
Any other takes on this situation? I would sincerely like to hear others' plausible upside to this new convertible issue.
Regards,
JS |
