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AMD to issue $2.2 billion USD in Convertible Senior Notes

AMD is a company that has been strapped for cash lately. In late April, the Sunnyvale, CA based company announced that it would offer Convertible Senior Notes to raise around $2.2 billion USD. AMD set a conversion point of $42.12 USD per share at a time when its stock price was $14 USD.

The company's efforts to raise more cash have intensified even further. Yesterday, AMD priced an additional $1.5 billion USD in Convertible Senior Notes at a conversion point of $20.13 USD per share. The conversion price represents a 50 percent premium over AMD's $13.42 USD stock price at close of day on August 8.

AMD plans to use the funds received from the offering to pay an outstanding balance on a loan from Morgan Stanley Senior Funding in late 2006. The company borrowed around $2.5 billion USD in loans and $1.2 billion USD in common stock to fund the $5.4 billion purchase of ATI Technologies. The company also reported a net loss of $600 million USD last quarter while archrival Intel reported net income of $1.3 billion USD.

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Sold, or will sell?
By Kuroyama on 8/10/2007 9:58:39 AM , Rating: 2
Is this an announcement that AMD sold the bonds, or that they plan to sell them? I read the article but don't understand the phrasing. The stock price drops in recent days has been due in part to a significant decrease in the ability of companies to borrow cheaply, so I'd be surprised if AMD did in fact successfully issue these bonds just now. And 5.75% interest seems quite low for a heavily indebted company like AMD, considering that my risk free FDIC insured bank account earns 5.3%.

RE: Sold, or will sell?
By mdogs444 on 8/10/2007 10:07:41 AM , Rating: 3
It means they are planning to sell more "bonds" of sorts. They will sell more and promise payouts of much larger sums than the bonds sold for. Only reason they do this is because the interest rate and fees paying late on the loans is probably more than what they will pay back on the bonds themselves.

RE: Sold, or will sell?
By 16nm on 8/10/07, Rating: -1
RE: Sold, or will sell?
By bobdelt on 8/10/2007 12:54:06 PM , Rating: 2
It's called investing for a reason. Almost every company finances their businesses with debt, and the ones that don't probably should or have way too much cash on hand and should issue a special dividend (like what palm is doing).

RE: Sold, or will sell?
By 16nm on 8/10/07, Rating: -1
RE: Sold, or will sell?
By BikeDude on 8/10/2007 9:05:08 PM , Rating: 1
I think AMD made the right move. I hate motherboards with integrated graphics, but... For business use, they make a lot of sense. A high percentage of PCs sold do not need the latest GPU.

And there might be some performance benefits from integrating the GPU.

Laptops might be able to squeeze out more performance while reducing power consumption.

etc... etc...

For most gamers, the concept of an integrated GPU is (for now) a dead end.

Besides, Intel have been talking about similar designs for quite a while. AMD need something to match or surpass them.

RE: Sold, or will sell?
By wordsworm on 8/11/2007 11:53:04 AM , Rating: 2
I read somewhere that Nvidia is working on getting integrated graphics to work with their cards as physics processors. If that works out, and AMD comes up with something similar, the onboard graphics could become an important part of the package.

RE: Sold, or will sell?
By 16nm on 8/12/2007 3:17:08 PM , Rating: 2
Why? How does ATI help AMD create CPU/GPU processors? AMD should have hired a few top engineers from ATI for their Fusion, not undertaken a multibillion $ acquisition that is mostly unrelated.

Oh, don't get me wrong, I don't think Fusion is a bad idea at all. I just think that it is not as important as AMD think it is. ATI cost TOOOO much and they don't even have anything related to this concept already in the works. I don't think ATI brought anything to the table with regard to this. AMD should have done it on their own like Intel are doing, OR bought a company that is already moving in this direction (fusing CPU and GPU) if one even exists! Now, the ATI guys are in the toilet when they were a reasonably healthy company at the time of acquisition. Look at the market share Nvidia keep gaining. When will this come to an end? ANd AMD are just as f'ed up for wasting so much d@mn money. The CEO and CFO should be in some very deep poo-poo if you ask me. Their heads should be rolling. In my opinion, they were only concerned with becoming a large chip manufacturer to massage their egos all else be damned.

I have a feeling Intel are going to absolutely dominate the whole idea of the CPU/GPU processor. AMD are royally screwed. Intel tripped up and gave AMD an excellent opportunity. AMD took very little to no advantage of it, and a couple years later, everything is a mess. Proof: Now that's desperation.

RE: Sold, or will sell?
By vignyan on 8/11/2007 6:49:47 AM , Rating: 3
Dude... me being an Intel supporter think that AMD has gone in the right direction... Probably i am nuts ;) but if you think in a bigger scale, the concept of SOC has been in the market for quite some time now. Now since intel had planned for that, AMD needs to gear up for that... Imagine that in 2009, intel comes out with a CPU+G+IMC on same package and ICH off chip (in sense of platformization), and AMD still produces (probably better) but only chipset, then its gonna be a BIG trouble for them in terms of competition. The Intel based systems in that scenario will be superior in almost all aspects as compared to any main-stream solution AMD and partners announce...

I think its good for AMD that they took ATI.. but for 5.4bn, ya... they seem to have paid a bit more than 1-1.5bn extra for the aquisition. Plus ATI has a record of not sticing to the dead lines consistantly ;)... Which is a perfect match for AMD... keeping up the reputation.. ;)

RE: Sold, or will sell?
By ebakke on 8/10/2007 1:26:25 PM , Rating: 2
I hope you hold some entry-level job, and never get into to any kind of management. That is, unless you go to school and learn how a business actually works.

RE: Sold, or will sell?
By spluurfg on 8/10/2007 10:10:25 AM , Rating: 2
Well, the FDIC insures you only to $100,000... so for corporations wishing to tuck millions away, this generally isn't an option for them =P

Basically the purpose of this note is simply to convert AMD's debt into equity, reflecting the recent spike in the cost of taking loans. To the buyer, it functions like a regular bond, except instead of cash, you get AMD stock at the maturation date.

I'm a bit scared by their pricing though... they're selling it at $1,000, and at the maturation date you'll get 50 shares... if the stock doesn't move from its current price of $13 and change, you'll end up with $666, which discounted today is worth $515, with a 5.25% risk free rate. In the end, including the coupons, you'd only get a 3.5% yield...

IE you get 5.75% interest, but the stock is going to have to go up in value to $20 if you want to get a 5.75% profit at the end.

RE: Sold, or will sell?
By adammthompson on 8/10/2007 12:13:45 PM , Rating: 5
"Basically the purpose of this note is simply to convert AMD's debt into equity, reflecting the recent spike in the cost of taking loans. To the buyer, it functions like a regular bond, except instead of cash, you get AMD stock at the maturation date."

No,this is incorrect. Convertible notes can be converted into stock. The noteholder would want to do this if the price of AMD stock goes above the conversion point. Otherwise, noteholders just get their principle back in cash.

The point of convertible notes is that they give the noteholder the possibility of making more money by converting the note into stock if the stock price goes up by a prescribed amount. Because convertible notes have this benefit for the noteholder, they have a lower interest rate. AMD benefits from the lower interest rate, but runs the risk of having to issue more equity. But there's only a chance that AMD will have to issue more equity. If AMD definitely wanted to convert its debt to equity, it would just issue more stock and pay off the debt.

RE: Sold, or will sell?
By spluurfg on 8/10/2007 12:59:18 PM , Rating: 3
Ah, I stand corrected -- I didn't know about the option to take cash at face value.

RE: Sold, or will sell?
By mmarq on 8/10/2007 5:15:31 PM , Rating: 2
But they threaten to go private!

They must be terrible sure that their stock is being undervalued... which is not surprising!...

So cut off the speculative element, and launch the notes seems to be a very 'smart' move. Everyone 'could' win 'except' the pure speculative element.

I think is sensible and not deserving censure if i say that
i stay away of stock markets like the plague. If only ALL companys playout their equity plans in this fashion, i would be in the 'paper' business without ever entering the confusion and speculative redden stock markets.

Adds to that that central governments only issue bonds, and central banks accept them.

If governments were to issue something like stock shares on a centralized institution holding all their vast possessions, i doubt the central banks would be so egger.

RE: Sold, or will sell?
By crystal clear on 8/11/2007 2:28:27 AM , Rating: 2
But they threaten to go private!

Yes- A Buy Out is inevitable with a massive cash infusion-Good for AMD & we the buyers/users.

RE: Sold, or will sell?
By mmarq on 8/11/2007 5:37:59 PM , Rating: 2
...A Buy Out is inevitable with a massive cash infusion-Good for AMD...

No. A buy out 'maybe' inevitable WITHOUT A VERY GOOD CASH INFUSION. The point is, if they have at least 1/3 of the very loyal, absolutely devoted no matter what, enthusiastic user base of Intel, as we can see from this forum, than they are safe.

If they don't, than no matter how superior or not their Barcelonas will be from the Cores, how pro-active the enthusiast user base is in seeking and seeing manipulated benchmarks favoring particular SSE implementations or other things...

..."wonder why there inst all encompassing, real good *applications centered* Linux benchamrks outside SPEC org, where anyone can see the source code and track dirty compiler tricks. Benchmarks should all be source available and compiler settings tracked"...

... they are downfall.

That is, i believe, one of the things they are betting with this notes deal.

RE: Sold, or will sell?
By crystal clear on 8/12/2007 5:40:19 AM , Rating: 2
I think 1Q 08 will show if I am correct or wrong on this.

Anyway nice exchanging opinions-you certainly have a good grip on your basics.

RE: Sold, or will sell?
By mmarq on 8/10/2007 1:56:58 PM , Rating: 2
Is this an announcement that AMD sold the bonds, or that they plan to sell them? I read the article but don't understand the phrasing.

Those are not stock. Those are notes. They are convertible to stock after a period of maturity, and it could be a very good deal, even more because AMD pay interest on those notes...

The conversion parity seems to be a little high now, but the market is extremely volatile..., it could mean a good profit to investors in any case, because those notes are redeemable at the fixed points.

" believe me, because of all that interest or dividend upon those notes (6 to 6 months), IT IS AN INCREDIBLE SAVE INVESTMENT CONSIDERING PRESENT MARKET STATUS, maybe not as lucrative as the ' risky ' speculative 'buy-to-sell' of stock, but could be very lucrative anyway."

So AMD pay interest just like bonds, though those notes are not bonds, they are not going to the open market... that is, you have to subscribe, and AMD has to accept.

It seems to me that the financial market interests want to kill AMD. Look how 'they' depreciated AMD credit rating just after announcements of getting rid of debt and of a superior product(K10):

So AMD is playing to raise their liquidity(cash) and lower their debts, in a very lawful way, that could be lucrative to investors to.

If i had enough money available now i would buy those notes. period. Not because of fanboyism or something like that, but because of the good deal.

And it could be even more safe and lucrative, because investors are not dependent of market weasels , but they themselfs can force the hand if they buy AMD products and campaign to 'close friends and relatives' to buy them to. When the notes mature they could reap a god profit on top of the interest payed...

... yes it could be considered like fanboyism, but its only investment protection anyway... everybody wanna and should be doing exactly that with every 'paper'... if it weren't for the selfish interests of the speculative market.

And that is why AMD came up with this 'notes' deal... almost like in a private fashion( to cut off the speculative element and put some power in the hands of investors).

Ok its not 100% infallible, mean profit absolutely guarantied, but considering the volatility and speculation on open markets its far far more save... and if anyone can point to a deal that is 100% guarantied, them (s)he could start insulting me right now...

( though i wont bother answering, because i'm not advocating pro AMD, only the deal, because i would recomend anyone a similar deal with Intel instead of stock in the open market. )

RE: Sold, or will sell?
By Orthogonal on 8/10/2007 4:25:31 PM , Rating: 2
Hector Ruiz? When did you get an account and start posting on DT.

RE: Sold, or will sell?
By mmarq on 8/10/2007 5:52:51 PM , Rating: 2
Hello Paul!

... the same day when 'one' has heard that Paul Ottelini had did it... only to find out that ' one's buddy ' was already there a long time ago with his congregation!

RE: Sold, or will sell?
By mmarq on 8/10/2007 6:23:46 PM , Rating: 2
How rude of me...

I forgot to clearly elucidate my friend;

Stock market ?...

RE: Sold, or will sell?
By Ringold on 8/12/2007 4:18:18 PM , Rating: 2
After a massive bull market stretch back years, with the indexes still positive for the year, and you refer to it as a bloodbath?

Even the big-name commonly held mutual funds are still up huge for the year.

Not to mention long term average annual gains of around 10%.

Sorry, but any view other than long term market participation is way, way out of the mainstream. Not my fault if you bought a bunch of home builders, REITs or mortgage companies earlier this year ;)

RE: Sold, or will sell?
By crystal clear on 8/11/2007 2:43:08 AM , Rating: 2
These loans and notes and ratings makes AMD's accounts an absolute minefield.

S&P + Moodys both are giving negative ratings !

They are neither BIASED or DUMB IDIOTS.

RE: Sold, or will sell?
By mmarq on 8/11/2007 5:07:53 PM , Rating: 2
They are neither BIASED or DUMB IDIOTS.

Of course not. But they are the 'ones' being excluded somehow from this deal... what do you think they'll vote for ?

And this is the point i'm so glad about this deal, and not in here for sterile 'fanboyism' discussions. Finally some company has realized they don't need the S&P + Moodys of this world upon a crises!... absolutely great!

RE: Sold, or will sell?
By Aerius on 8/13/2007 6:32:30 PM , Rating: 2
I can’t tell if this is a joke post or one by some random kid who does not understand capital markets. Basically your post has too many errors to correct, but to hit a couple highlights:

1) According to your link, S&P raised the rating of unsecured debt, not lowered – so put away the tin foil hat; the outlook has was, and still is, negative.

2) On what grounds is it not ‘risky’? I think a company who blows through hundreds of millions of dollars and is running out of cash pretty risky. In case you didn’t know, if they go bankrupt you don’t make money. If they were a corp in tip top condition they wouldn’t have to make the notes convertible to get a decent yield.

3) The conversion price is at $42 (!!), AMD has closed that high a couple days ever. If you are that confident that you will be able to exercise at anything that high, just buy the stock – more upside. Your ‘get your fiends and family’ to buy comment cracked me up – you sure you aren’t some delusional fanboy? You think you can affect their bottom line in a material way?

4) If you want a 100% infallible investment consider TIPS, or some other kind treasury investment that is guaranteed by the government. Sure you won’t be getting 5.75%, but you will be getting something very close to that. Also note that the notes are unsecured, so who knows how much you would get in the case of some sort of liquidation or chapter 11 filing.

The offer is probably ‘fair’ as there are no free lunches and markets are reasonably efficient. There is some upside but also significant risk; to talk about it as if it was the deal of the century is rather comical.

RE: Sold, or will sell?
By crystal clear on 8/11/2007 1:00:42 AM , Rating: 2
Read this-Its all very clear & precise.

RE: Sold, or will sell?
By crystal clear on 8/12/2007 5:47:25 AM , Rating: 2
This from the press release-

AMD expects to grant to the initial purchaser a 30-day option to purchase up to $225 million aggregate principal amount of additional notes to cover over allotments.

Which means-

AMD will give the initial purchaser a 30-day option to buy up to an additional $225m worth of notes, which could bring the sum raised to $1.725bn.

RE: Sold, or will sell?
By octop8 on 8/12/2007 2:08:20 AM , Rating: 3
The articles says the bonds have been "priced". This means the deal is done. Institutions have bought and just awaiting settlement.

"Nowadays you can buy a CPU cheaper than the CPU fan." -- Unnamed AMD executive

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