Terms of the 95 financing package;
_________________________________________________________________
In October 1995, the Company completed a $225 million private placement of debt securities with institutional investors (the "Debt Placement"). The transaction was structured as a unit offering with two components $150 million of Senior Discount Notes due in 2005 (the "Senior Notes"), and $75 million of Convertible Senior Subordinated Discount Notes due in 2005 (the "Convertible Notes"), convertible at $20.625, a 10% premium over the closing price on October 18, 1995, the day of pricing. Both securities accrue interest at 14% per annum, with no interest payable during the first five years, and principal payable only at maturity in October 2005. After five years, both securities require the payment of interest only, in cash, until maturity. In addition, the Convertible Notes, including accretion thereon, will be automatically converted during the initial five year period if the market price of the Company's common stock exceeds certain levels for thirty consecutive trading days, ranging from $37.50 per share in the first year to $44.00 per share in the fifth year.
_________________________________________________________________
Automatic conversion is still not clear. Period is 30 days, and since we're in the third of 5 years, the price level is somewhere in the 40 to 41 level. I think after today we've closed above 40 for 22 consecutive days. Must be getting close to the automatic conversion. I can see that it would be in Morgan Stanley's (and their customers) best interest to not be converted at this time, as they keep the conversion right, and continue to accrue 14% interest in the mean time.
Anyone with any thoughts as to if this could be a reason for Comforts downgrade? Could this become a tug of war between the company and MS; MS doesn't want to convert (and hence the need to get the stock below 40) and the company would want to convert to get the 14% money off the books and replace it with the cheaper money just obtained? Or is it just totally a coincidence that Morgan Stanley was underwriter for the convertibles and they just happen to be getting close to converting?
Don't know, just thinking out loud, and wondering about the timing of Ms. Comfort.
The balance on the convertibles is probably just over $100 million. If they are converted this month (at 20 5/8), this would add (remember that dilution word) a little over 5 million shares to the current outstanding. |
