The latest $300m private placement was a brilliant move, in my opinion. The company would have sold additional equity, but, the share price had been under pressure. I believe that this sent a message to shorts....the company has plenty of flexibility to meet growth/financing needs going forward. The net result of the latest offering is they sold shares at $9.74 that had a current market (at the time of the offering) of over $1 lower than the conversion price. Shorty is waking up.....the strategy to strangle NRF funding options isn't going to work. I like the company more every day and every dividend!
I agree these notes are a great deal, but read the disclosure carefully. NRF did NOT sell shares at 9.74.
NRF, at specified times, has the OPTION to pay the notes with common shares at 9.74 per share, subject to adjustment in certain circumstances (such as stock splits).
These are 20-yr notes with a fixed coupon of 5.375%. After discounts and offering expenses, I expect the effective interest rate will be about 5.5% to 5.65%. It is hard for me to imagine that these new private equity partnerships will yield less than 12% on unlevered cost (there is leverage inside each limited partnership).
If 12% is the correct unlevered yield, then nrf makes between 6.5% and 6.35% on this loan. At 300 million, the profit is around 19 million / 210 million shares = 9 cents per share.
The exchange provision is a one-way street in favor of nrf. If the price of the stock is 7, they will issue at 9.74.
If the price is 16, they will issue new stock and pay the notes with cash.
Especially in a rising interest market, 5.6% money for 20 years is a super deal.
Dar, I concur with what you are saying. I understand that they did not actually sell stock at $9.74, I was pointing out the advantage in the private placement and how it was a smart move by NRF, for all the reasons you detailed, but, as importantly, the message it sends to the naysayers (and shorts). The company has a lot of flexibility in accessing the markets for cash to grow the business. You are much better at filling in the details than me. By the way, the HTB designation was on my SCHWAB screen as of this morning. Keep the detailed posts coming!!