AMD launches $1.5B notes sale to pay off loan

August 9, 2007 – AMD says it plans to raise $1.5 billion through the private placement of 5.75% convertible senior notes due 2012, plus another $225 million to cover any overallotments. Initial conversion rate for these notes into common stock is 49.6771 shares/$1000 principal amount of notes, or a conversion price of about $20.13/share, a 50% premium to the stock’s trading price on Aug. 8.

Nearly all of the projected sale amount is expected to be turned into net proceeds, used with available cash to repay existing balance on a term loan received by Morgan Stanley in Oct.2006, with any leftover funds to be used for “general corporate purposes” including working capital and capex.

AMD, long thought to be seeking ways to raise funds, indicated that it netted $1.5B from a separate $2.2B convertible offering last quarter, and says it’s finding other ways to scrape together cash, including monetizing assets to create $1B in funds, while slowing the ramp of Fab 38 in Dresden to shave another $200M off its capex (a flexibility it enjoys thanks to a close partnership with foundry Chartered).

While the deal won’t materially improve AMD’s cash position, it likely will remove a hurdle to AMD selling some assets, notes Doug Freedman, analyst with American Technology Research, adding that that the move also shows that AMD can still tap capital markets. He points out in a research note that if AMD is looking to sell some assets, Fab 36 wouldn’t generate much return (since it’s held in a subsidiary with assets as collateral), but its 200mm Fab 30 “would likely generate a meaningful cash injection that could go to pay down debt and improve the company’s financial leverage.”

Freedman noted that AMD “continues to burn cash” but the ATI side of the business “is making strides” with a reported win in Apple’s new iMac lines and possible midrange notebook business with OEM Lenovo.


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