Ah... now I know why the block trades:
CenterPoint Energy to sell $400 mln conv notes
Monday May 12, 5:19 pm ET
LOS ANGELES, May 12 (Reuters) - Texas utility CenterPoint Energy Inc. (NYSE:CNP - News) on Monday said it plans to sell through a private offering $400 million of convertible notes due 2023.
The Houston-based company, formerly known as Reliant Energy Inc., said it will also grant initial purchasers an option to buy up to an additional $60 million of the notes.
CenterPoint said it will use the net proceeds to repay a portion of the outstanding indebtedness under its existing $3.80 billion credit facility.
The notes will be convertible into CenterPoint Energy common stock under certain conditions at a conversion price representing a to-be-determined premium to the current market price. The interest rate and other terms will be provided at pricing, the company said.
I bought AMTD at 5.19 on the theory that a new bull market is beginning ... have a 29 percent gain in it thus far (no, my trades don't usually work out that well) .... Last week, I bought some DELL, first time I've been in a tech stock for awhile.
thanks, that's a better explanation. At any rate, my initial point -- that this shouldn't be a surprise to anyone -- still stands. I reduced my holdings by about 40 percent a couple weeks ago, will consider adding back if it dips to the 6's or if the STP situation gets resolved.
From PR re new bak loan
* We have agreed to provide the bank syndicate warrants to purchase up to ten percent of CNP common stock. The issuance of the warrants is intended to be an incentive for the company to access the capital markets in order to reduce the size of the facility.
* Warrants are not exercisable until one year after issuance and are
subject to a proportionate vesting schedule.
* A maximum of 50 percent of the warrants will vest if the company
does not reduce the size of the bank facility by $400 million
within 90 days.
* A maximum of 50 percent of the remaining warrants will vest if the
company has not reduced the size of the facility by an additional
$400 million by December 31, 2003.
"The 10-K states that the company had to raise at least $200 million in equity to avoid a change in the common dividend terms. that was a tipoff this was coming..."
I don't know any more than you do, of course, but I'm not sure this was driven by the dividend terms so much as avoiding the vesting of the first 50% of the warrants. First, the change in dividend terms didn't happen until December 31, 2003, so they had lots of time on that. Second, as Gary Whitlock (CFO) mentioned in the CC, even then earnings would have to fall below 0.80/share for the 50% of EPS limitation to be effective, which I gather they think is pretty unlikely.
The fact that these are "equity linked" (convertible), however, does kill both birds with one stone. Now all we have to be concerned with is the second 50% of the warrants, which vest December 31 unless another 400mm is paid down.
not sure I agree with you that this was purely an option. The 10-K states that the company had to raise at least $200 million in equity to avoid a change in the common dividend terms. that was a tipoff this was coming...
A couple of points, mainly that "CNP is not MIR" (!!)
MIR was forced under threat of bankruptcy to do their convertible. MIR's drop was partially due to the convertible, but more because of a disaster across the industry. For CNP this was purely an *option* meaning this was only done because CNP management thinks this bond issuance is better for the company in the long term than hanging on to the bank debt.
I don't think the converts are trying to "lock in" the dividend rate by leaving their shorts locked in. Then they'd basically receive a 4.5% yield on the bonds. You can get that sort of return in much easier ways than buying a convert then shorting the stock.
So in summary, I think the primary reason for weakness today is they are trying to lower the conversion price. Which is why I think it will rebound tomorrow.
This stock trades on insider information; they all do, but it is very noticeable here because the stock doesn?t usually trade large blocks.
Btw, options expire on Saturday and, yes, the specialist will probably land this on $7.50 between now and Friday.