Morgan Stanley, I just can't get enough of Morgan Stanley.
<In the deal, Amazon's underwriter, Morgan Stanley Dean Witter & Co., sold $530 million worth of 10-year notes at a startling 38.5 percent discount from their face value - meaning that Amazon received (net of fees to the underwriter), less than $320 million from the offering. Of course, come May of 2008, when the notes mature, Amazon will have to pay back all $530 million, which includes the $210 million it never received in the first place.
ÿ ÿ ÿ ÿWhy pay back more than it received? Because that was the only way the notes could be sold at all. Since Amazon.com couldn't afford the cash drain of interest payments on the notes, Morgan Stanley structured the deal to be free of payment (the interest would simply "accrue") for the first five years, with the notes paying 10 percent annually thereafter until maturity. With the steep payment at maturity, Amazon.com has simply pushed off the day of reckoning in the hopes that its business prospects will brighten enough by then to pay off, or refinance, the deal. |
