Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Technology Stocks : Global Crossing - GX (formerly GBLX) -- Ignore unavailable to you. Want to Upgrade?

To: SKIP PAUL who wrote (2983)	10/30/1999 2:14:00 PM
From: cdtejuan	Read Replies (3) \| Respond to of 15615

FWIW, found this on the yhoo gblx thread. It might help to understand this convertible deal issue more. Anybody care to comment/correct... Pakka97ïs explanations? Regards, Juan <<<<<<<<<<<<<<<<< New Convertibles(1) by: pakka97 10/30/1999 11:17 am EDT Msg: 29519 of 29547 GBLX announced yesterday that on November 5th it will issue $1 billion worth of 6.375% cumulative preferred stock, convertible into the common at a conversion price of $45. It will be offered and sold pusuant to the SEC's Rule 144A which means ONLY to certain, supposedly sophisticated, institutional investors. Global thereby avoids the costly and time consuming preparation of a formal prospectus. It is apparent that many board members are puzzled by what preferred shares really are, how the conversion provision works and what the effect will be on their common stock holdings. Following is my modest effort to throw some light on the matter. Unfortunately, some of this is rather "dry" but that's the price of illumination! First off, Preferred Shares represent EQUITY. The institutions who supply these funds will own (have a call on) a billion dollars worth of our company. They are not lending money to Global as banks and other debt holders would or do. A somewhat theoretical but IMPORTANT concept. Let's assume that each of these new shares have a Par Value of $100 and are issued at that price. Thus 10,000,000 shares will be outstanding. Dividends: Global promises to pay 6.375% or $6.375 annually (probably paid quarterly in equal instalments) in dividends on each share. These dividends are CUMULATIVE. In other words, should Global not pay any preferred dividends for a while, all the missing ones accumulate and must be paid later. Preference: Global must FIRST pay its preferred dividends (and any arrears) before any dividends are ever paid to common shareholders. But note that dividends to common shareholders are theoretically unlimited in amount while the preferred shareholders' dividends are FIXED. In liquidation, the par value of the preferred shareholders' stock must be paid to them BEFORE any distributions are made to the common shareholders. The rights of debt holders of various shades and colours to their principal and interest rank, of course, before those of both the preferred and common shareholders. Redemption: Normally a company will have a right to redeem its preferred shares at some later date (5 to 10 years?) often at a slight premium to their par value. Thus the company can, at some later date, actually force conversion (see below). Cont..../2 ---------------- New Convertibles (2) by: pakka97 10/30/1999 11:21 am EDT Msg: 29521 of 29548 So preferred shareholders are OWNERS of a company, they get a FIXED dividend and they have a FIXED interest in the company's assets. All this in PREFERENCE to the common shareholders. Conversion: This is the "kicker". Owners of this issue of Global preferred stock will have the privilege to convert their $100 par value shares into $45 worth of common shares (the conversion price). This means that they can exchange each of their convertible preferred shares into 2.22 shares of common stock. This is the amount of common which "underlies" each share of convertible preferred. It's doubtful that this privilege will be perpetual. Just as there will surely be a redemption feature (see above), the conversion period will be something like 5 to 10 years. In essence, the convertible preferred shareholders have a "call" on the common stock of GBLX at $45 for quite a lengthy period of time and, in the meantime, are getting paid a long-term treasury rate of return on their dough. Nice if you can get it! Other Facts and Observations: 1. Non-payment of preferred dividends (remember preferred shareholders are owners, not lenders) does not threaten bankruptcy as would failure to pay interest on debt. Furthermore, lenders often insist on stringent covenants which restrict a company's ability to raise more capital. Preferred share covenants are usually much "softer". Thus, by issuing preferreds, Global has more flexibility in future financings. 2. Global would have had to pay 10+% for debt money and 12+% for "straight" (no conversion kicker) preferred shares so it is saving about $40 to $55 million per year in cash with this type of issue. 3. The new convertible preferred shareholders will not convert their shares unless forced to by redemption or the expiry of the conversion privilege. They are getting paid to wait! If you think about it, as the common rises in price over $45 the convertible preferred shares will trade more and more like the value of the underlying 2.22 shares of common. I will not discuss the situation (the horrors of which are too Hallowe'en-like) should the common not rise above $45 in the next 5 to 10 years. 4. Potential dilution is 22.2 million shares added to the 780? million GBLX shares now outstanding or less than 3%. Not too onerous. And when the preferreds are converted it will mean a cash savings of their dividends ($63.75 million). Global will report earnings in the future as if this conversion had taken place. 5. I would be remiss in not pointing out that when a company resorts to issuing convertible preferred shares there is an implication that this could be a type of "last resort" financing, that it could not make more "normal" arrangements. Indeed, the field is littered with "convertible" financings which did not work out. I prefer the think that this one will. The potential for huge future revenue streams is great enough, in my opinion (not humble!) to service Global's financing needs. 6. GBLX has no doubt become more speculative. This is the result of adding more fixed costs (i.e. leverage) to its balance sheet. But that's the price one must pay for rapid growth. 7. It's a real pity that this new issue will not be available to us, the "hoi polloi". I can see it fitting the investment objectives of many of the posters here - essentially the "older" (more horrors!) types looking for income as well as growth. 8. I think one can see why the market "stuttered" when this financing deal was announced (someone with "inside" connections obviously found out about it late Thursday afternoon!). But, all in all, I am positive about it. Really, Global is financing the Racal thing by issuing stock at a 29% premium ($45 vs. $34) to its present market price at a 3% dilution factor. Not bad! (considered a high compliment in my family). Posted as a reply to: Msg 29519 by pakka97 View Replies to this Message

To: SKIP PAUL who wrote (2983)	10/31/1999 1:12:00 AM
From: Robert Sheldon	Read Replies (3) \| Respond to of 15615

Well on thinking it over it seems that this company needs more is financing talent. Rest easy friend. The story goes that GBLX (at least the idea) emerged from the primordial soup at T when someone noticed a bit of discarded bread . . . a few winks (or should I say Winnicks & Co.) later the former right hand man of the fabulous Michael Milken (READ OUR HERO GARY WINNICK) waltzed MaTilda across the Beverly Hills, hopped over the continent and rolled safely to a stop at Mulberry Street in Manhattan without so much as getting the cuffs of his pants dirty (folks don't try this at home - it helps to put up a couple of million of your own money to stay clean). Anyway, should we agree that the man himself comes with quite a pedigree? BIG DISCLAIMER! While some of you may look with disgust on the above statements because of the soft light I throw to Mr. Milken, I will hope that you will go back and actually READ the case against our fair weathered friend. You will find that when the clouds rolled in a bunch of dimwits concerned only for their bank accounts became turncoats and unceremoniously scuttled the incredible career of this man. Until then I will endeavor to persevere when it comes to the inevitable snotty uneducated shots across my bow.