Monday, March 22, 2010

Notable financing (KALU)

The manner in which a company raises capital says a lot.

Kaiser Aluminum (KALU) will be raising some money. But the manner in which its doing so is messy enough to scare people away from owning the common stock.

First, they'll offer $130-$150million in cash convertible securities:
FOOTHILL RANCH, Calif., March 22, 2010 (GLOBE NEWSWIRE) -- Kaiser Aluminum Corporation (Nasdaq:KALU - News) today announced its intention to offer, subject to market and other conditions, $130 million aggregate principal amount of cash convertible senior notes due 2015 (the "notes") in a private offering to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended. In certain circumstances, the notes may be converted into an amount of cash equal to the market value at that time of a number of shares of Kaiser Aluminum's common stock into which such notes are convertible. However, the notes will not be convertible into Kaiser Aluminum's common stock or any other securities.
They point out that the "convertible" nature of these notes will not actually let the holders "convert" them into shares. But they'll convert to cash based on a notional amount of shares, so it might actually be better for the note holders.

The same group that is buying these notes will be selling back to the company about $50million in common stock:

In connection with the offering of the notes, Kaiser Aluminum expects to repurchase up to $50 million of its outstanding common stock in privately negotiated, off-market transactions with purchasers of the notes, which may be effected through one of the initial purchasers of the notes, and to enter into convertible note hedge transactions with some or all of the initial purchasers and/or their affiliates (the "option counterparties"). The convertible note hedge transactions are expected to generally reduce Kaiser Aluminum's exposure to potential cash payments in excess of the principal amount of the notes that it may be required to make upon the conversion of the notes. Kaiser Aluminum also expects to enter into warrant transactions with the option counterparties pursuant to which Kaiser Aluminum will sell to the option counterparties net-share-settled warrants to purchase shares of Kaiser Aluminum's common stock. To the extent that the market value of Kaiser Aluminum's common stock on the applicable valuation dates exceeds the strike price of the warrants, the warrants will have a dilutive effect. If the initial purchasers exercise their option to purchase additional notes, Kaiser Aluminum expects to enter into additional convertible note hedge transactions and warrant transactions with the option counterparties.
In connection with hedging the convertible note hedge transactions and the warrant transactions, the option counterparties and/or their affiliates expect to enter into various derivative transactions with respect to Kaiser Aluminum's common stock concurrently with or shortly after the pricing of the notes. These activities and the repurchase of common stock by Kaiser Aluminum could increase (or reduce the size of any decrease in) the price of Kaiser Aluminum's common stock concurrently with or shortly after the pricing of the notes. In addition, the option counterparties and/or their affiliates expect to modify their hedge positions from time to time by entering into, or unwinding, various derivative transactions and/or by purchasing, or selling, shares of Kaiser Aluminum's common stock in secondary market transactions, and are particularly likely to do so following the conversion of a note or shortly before the maturity date of the notes. Although the effect of these activities on the price of Kaiser Aluminum's common stock will depend in part on various market conditions and cannot be ascertained at this time, the effect could be to depress (or to avoid an increase) in the price of Kaiser Aluminum's common stock.
In connection with the offering of the notes, Kaiser Aluminum also expects to terminate its $265 million existing senior secured revolving credit facility and enter into a new $200 million, four year senior secured revolving credit facility providing for borrowings based upon advances against eligible accounts receivable and eligible inventory. The new credit facility is expected to close simultaneously with the pricing of the convertible notes.
Finally, Kaiser will use "up to" $50million in proceeds from this offering to buy back shares on the open market. Good grief, if its this messy for them to raise capital, the shares will likely be a bargain:
Kaiser Aluminum plans to use the net proceeds from the offering of the notes to pay the costs of the convertible note hedge transactions (after such costs are partially offset by the proceeds that Kaiser Aluminum receives from the warrant transactions) and to repurchase up to $50 million of its common stock. The remainder of the net proceeds will be used for general corporate purposes.
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