Friday, July 31, 2009

Cash is King; Sybase refinances $350m convert

On July 29 Sybase priced its $350million (with a $50 million over-allotment) 3.5% Convertible Senior Notes. Primary use of proceeds is to refinance existing 1.75% convert due 2025 which the holders could put as of July 28, 2009. In conjunction with the new offering Sybase will repurchase $50 million of its stock to support the shares. This is common practice in convert issuances as hedge fund investors typically short the underlying stock as they invest in convertible arbitrage. This strategy essentially lets the investor benefit from the cash coupon as well capitalize on inefficient pricing of the underlying stock, without being exposed to stock price volatility.

If not for the new convert, Sybase would have spent over $400 million to redeem the original convert holders. Although Sybase has close to $800 million in cash, almost half is over seas and repatriating international cash would mean paying heavy taxes. Issuing a convert was a smart use of the capital structure to maintain ample cash and liquidity; a common practice for software and tech companies in this turbulent market...afterall Cash is King

1 comment:

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