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Alliance One International, Inc. Message Board

  • peristentone peristentone Jul 19, 2009 1:12 AM Flag

    New Convertible Bond

    Does anyone else here have a concern about the $100M in convertible bonds that they just issued that converts somewhere around $5? Why did they need to do that? With the market cap around $400M that represents a lot of potential dilution.

    I'm also thinking the convertible might be an attractive investment. With the conversion so low it might make a proxy for the common shares and you get a built in dividend of sorts.

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    • Has anyone else read the announcement about these new convertible bonds? Why in the world did they issue these things at all (given the dilution) and why did they engage in all of these level of derivative transactions around them? Shareholders are getting screwed here in multiple ways:

      1) We are subject to a potentially huge dilution on the convertible bonds and the warrants.

      2) We are paying lots of unnecessary fees on all of these strange derivative transactions, and the stock price is subject to a lot of movement down when those derivatives are unwound when the convertible bonds are exercised.

      Who are the banks that participated in this offering? Is there a possibility that any of the entities that are participating in this transaction have some relationship to management of AOI? The whole transaction feels like a transfer of wealth away from shareholders to the wealthy privileged few. The whole thing stinks.

      Here is the relevant part of the press release:

      "In order to reduce its exposure to the potential dilution with respect to its common stock upon conversion of the Convertible Notes, Alliance One intends to use a portion of the net proceeds of the offering of the Convertible Notes to enter into one or more convertible note hedge transactions with one or more of the initial purchasers of the Convertible Notes or their respective affiliates (the "hedge counterparties"). Alliance One also expects to enter into separate warrant transactions with the hedge counterparties, which would result in additional proceeds to Alliance One.

      The Company intends to apply the remaining net proceeds of these offerings to repay outstanding borrowings under its $305 million senior secured credit facility, as well as for other general corporate purposes, which may include retiring any Existing Notes not purchased in the Offer.

      In connection with the convertible note hedge and warrant transactions, the hedge counterparties or their affiliates may enter into various derivative transactions with respect to Alliance One's common stock concurrently with or shortly after the pricing of the Convertible Notes. These transactions could have the effect of increasing or preventing a decline in the price of the Company's common stock concurrently with or following the pricing of the Convertible Notes. In addition, the hedge counterparties or their affiliates may from time to time, after the pricing of the Convertible Notes, modify their respective hedge positions by entering into or unwinding various derivative transactions with respect to Alliance One's common stock or by purchasing or selling Alliance One's common stock in secondary market transactions during the term of the Convertible Notes (and are likely to do so during the six-month period prior to the maturity of the Convertible Notes). These activities could have the effect of decreasing the price of Alliance One's common stock and could adversely affect the price of the Convertible Notes."

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