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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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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
quote:
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
quote:
...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.


"We shipped it on Saturday. Then on Sunday, we rested." -- Steve Jobs on the iPad launch

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