AMD cut by S&P, will sell $350 mln notes Tuesday
Tuesday November 19, 4:47 pm ET
By Jonathan Stempel
biz.yahoo.com
NEW YORK, Nov 19 (Reuters) - Standard & Poor's downgraded Advanced Micro Devices Inc. on Tuesday on concerns about the chipmaker's ability to boost profits and weather soft demand.
The downgrade was announced hours after AMD (NYSE:AMD - News) said it planned to sell $300 million of notes convertible into company shares, which may dilute the stock. AMD later boosted the sale of five-year senior notes to $350 million, people familiar with the sale said. AMD shares fell more than 14 percent.
The sale by AMD, based in Sunnyvale, California, was expected by Tuesday evening, the people said.
S&P cut AMD's corporate credit rating one notch to "B-minus," its sixth highest "junk" grade, from "B," and rated the notes "CCC," two notches below "B-minus." Its outlook is negative, meaning another cut is more likely than an upgrade. Downgrades often boost borrowing costs.
Bruce Hyman, an S&P director, said S&P informed AMD of the pending downgrade before the company announced the note sale.
"We wanted to be sure we were comfortable with the rating before the notes were priced, and that required the change," he said. "The $300 million provides AMD with additional financial flexibility to support its operations for several quarters. Next year will be rough in semiconductors, but things should get better afterward."
AMD has been hurt by a weak personal computer market, rising inventory and competition from No. 1 rival Intel Corp. (NasdaqNM:INTC - News). It said on Tuesday it plans to develop processors for a wider range of products outside computers. A day earlier, it said it would take up to $600 million in fourth-quarter pretax charges for 2,000 job cuts and other items.
AMD shares closed on the New York Stock Exchange at $5.58, down 94 cents. They have fallen 65 percent this year.
BOND SALE
Hyman said AMD would be challenged to achieve its goal of "significant profitability" in 2003, although the company was refreshing its product portfolio and cutting costs.
If AMD fails to significantly boost profits or cash flow, or suffers a "material" decline in financial flexibility, another downgrade is possible, he said.
AMD sold $500 million of 20-year convertible bonds with a 4.75 percent coupon in January. It said it expected to use proceeds from the new note sale for general corporate purposes, including capital expenses and working capital. It may sell a further $52.5 million of notes to meet demand.
The notes are expected to carry a 4.5 percent to 4.75 percent coupon and be convertible into AMD common shares at a 27 percent to 29 percent premium. A 4.75 percent to 5.25 percent coupon and 23 percent to 27 percent premium had earlier been expected. The changed terms suggest strong investor demand. AMD cannot buy back the notes for three years.
A convertible bond is a stock-bond hybrid that usually offers current income and can be converted into company stock.
AMD had about 343.5 million shares outstanding as of Oct. 25, its quarterly report filed with the SEC showed.
Banc of America Securities LLC and Salomon Smith Barney are arranging the note sale. (Additional reporting by Caroline Humer and Franklin Paul in New York and Reed Stevenson in Las Vegas.)
It's not really Bob's fault that the chart looks so good. He probably should refrain from commenting on it though... <g>
Anyway, we are just about done with earnings here for a while so the failure thus far of the NASDAQ to take out 1426, the August high, is every bit as important as the nice looking cup and handle chart.
The fundamentals are terrible but they always are at the bottom. The question is are we truly at the bottom?
I still maintain that we are not.
Having been mistakenly bullish for most of the last two years has forced me to rethink my viewpoints on valuations. This market is still tremendously over valued. That does not mean the market cannot become even more over valued as the last six weeks should prove.
Favorable seasonal factors have been at work in conjunction with a technically oversold market at the beginning of this move which led to a great deal of short covering.
But even if the market can go higher from here, instead of lower, there simply is not going to be enough earnings growth to sustain these valuations in my opinion.
RtS |
