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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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This hurts regular AMD stockholders
By LTG on 8/10/2007 10:46:05 AM , Rating: 2
What they don't advertise too heavily is that "Senior Notes" means this debt takes priority over all normal share holders.

For example if I have 1000 AMD shares, and they can't pay their bills, all of my shares can become worth *ZERO* while people with these notes could still not lose their money.

So that's one of the reasons some people will buy these, as it puts them ahead of the line, compared to all regular shareholders.




RE: This hurts regular AMD stockholders
By adammthompson on 8/10/2007 12:20:45 PM , Rating: 3
"What they don't advertise too heavily is that "Senior Notes" means this debt takes priority over all normal share holders."

Actually, "senior notes" means that it takes priority over other debt (subordinated notes). Even subordinated notes take priority over stock. Stockholders are pretty much at the end of the line in the case of bankruptcy.

Once convertible notes have been converted to stock, however, they're just as risky as stock (because they are stock).


RE: This hurts regular AMD stockholders
By LTG on 8/10/2007 1:44:30 PM , Rating: 2
Still hurts shareholders either way.

These notes take priority over shareholders, and even if they convert to regular stock they still will dilute shareholders.

So no matter what the details, this is something you don't want to happen if you own the stock (unless it's a last resort which it seems like this is).


RE: This hurts regular AMD stockholders
By crystal clear on 8/11/2007 1:05:58 AM , Rating: 2
AMD has as in the previous offering entered into capped call transactions in connection with the offering, a move intended to reduce the potential dilution to common stockholders if the notes are converted into shares.

Shareholders are not fools-they know how to protect their interests.

AMD management is well aware of that, shareholders could send them off to retirement-

Pension Road Maps !.


RE: This hurts regular AMD stockholders
By LTG on 8/12/2007 1:16:46 AM , Rating: 2
quote:
AMD has as in the previous offering entered into capped call transactions a move to reduce dilution to stockholders...

Shareholders are not fools-they know how to protect their interests.


But now this means AMD had to pay even more "interest" to borrow this money by buying the call options, so the cash keeps a draining...

I would say you could make an argument that only "fools" would buy the stock now.

But look on the bright side, Barcelona could launch at 2.2Ghz instead of 2.0Ghz - maybe that will help them.


By crystal clear on 8/12/2007 6:44:26 AM , Rating: 2
"But look on the bright side, Barcelona could launch at 2.2Ghz instead of 2.0Ghz - maybe that will help them".

YES indeed-only for us the buyers & not the company.

Again the price & performance factor comes into play.

Hope the products do well in the market.


By B on 8/10/2007 5:15:22 PM , Rating: 2
Regarding them being senior notes to the detriment of shareholders: equity is always a more risky asset class than debt. The bond holders will get a fixed interest payment no matter how successful the company is (for simplfication I disregarded the fact these are convertible). The shareholders will get to participate in the upside and growth of the company. Also, the shareholders are the owners and it is logical that they repay their debts before themselves.

Regarding the conversion of debt to equity being a dilutative transaction: the conversion would only dilute current earnings, not assets. The conversion is simply reclassifying debt to equity in lieu of reducing both an asset and a liability by the repayment of said debt.


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