A Look Behind Alcoa Offerings [WSJ 3.27.09]
Speed to Market Helped Aluminum Giant Raise Cash in Bad News Week
By HEIDI N. MOORE
online.wsj.com
March 16 was a day of bad news for Alcoa investors. Late in the day, the aluminum giant warned of a first-quarter loss, cut its quarterly dividend 82% and said it needed to raise $1.1 billion in the capital markets to help prepare for a long downturn in its business and to pay back debt coming due soon. The stock fell 8.7% the following day.
Yet the company not only raised cash that week, but the nearly $900 million sale of stock and $500 million sale of convertible debt meant it exceeded its target. "I think the market has become more accustomed to the volatility. People are now so used to seeing volatility that news flow is impacting them less," said a person familiar with the deal.
Deal Journal spoke with people familiar with the offering to get a look inside the deal and at how banks are helping companies raise money in this market.
Alcoa hired Morgan Stanley and Credit Suisse Group to lead its financing, with Citigroup, Deutsche Bank and Barclays among others as co-managers.
One key was speed: a two-day blitz of meetings and calls with investors at which management emphasized that Alcoa would be a survivor, talked up the company's financial and economic position compared with peers, and predicted a bottom was near for the sector and aluminum prices, which are near historical lows.
It also pitched the offering as a chance for investors who had sold their Alcoa holdings last year to get back in at relatively low prices.
With the credit markets showing some signs of thawing this year and the stock market hitting 12-year lows in March, companies have been turning to the bond markets to raise cash to pay off debt.
But Alcoa opted for a stock offering because it didn't want to endanger its balance sheet by piling on debt, according to people familiar with the company's plans.
Alcoa also had a little bit of luck: as the deal was being priced, aluminum prices posted the biggest one-day uptick in more than a year.
Perhaps the biggest surprise was the success of the convertible-debt sale. Underwriters had planned to sell only about $250 million of bonds that convert to stock in five years. But strong demand enabled that to rise to $500 million, while allowing underwriters to trim the coupon -- or interest rate -- to 5.25% from 6%.
Since that 8.7% drop, the price of Alcoa stock has risen 45% on the New York Stock Exchange. |
