US Airways to Repurchase 7% Senior Convertible Notes Due 2020 at the Option of Holders

[ebwgs]

http://finance.yahoo.com/news/US-Airways-to-Repurchase-7-bw-726389806.html?x=0&.v=1

Our stock price is up today. I'm guessing this announcement has something to do with it. I'm not a Wall Streeter, so what does this mean in practical terms?

 

[autofixer]

I am not a Wall Street type, but I am guessing they borrowed money at a very low interest rate with which they are wishing to retire the 7% debt... or they have a pocket full of cash with which they wish to retire the debt. Borrowing money at artificially low rates and buying back stock and retiring debt is the rage on Wall Street right now. No-one is actually operating their companies right now, they are all doing weird financial deals. It is just the next thing to blow up thanks to government intervention. Even banks are doing this, taking customers deposits and buying government bonds and reaping a cool 2 or 3 percent at no risk. This is one reason the banks are not lending money, however they are making huge profits, why take the risk? It all comes back to the Fed keeping rates artificially low to try to keep their Keynesian house of cards upright.

 

[back2CLT]

Actually...the borrowers are excercising their put option, which means the borrowers are forcing US to pay them back. This is usually a bad thing, as it would typically mean they no longer view 7% a suitable return for the risk. However, US stock is up with the rest of the market today, but at greater % (and exceeding United). Obviously the market as a whole isn't concerned and could see it as a positive (reducing expensive debt).

The bonds were a private placement, so the most likely scenario in my mind is that the bondholder needed some quick cash, or was under some mandate to diversify their portfolio (maybe they were too concentrated in airlines).

 

[SS255]

Wall Street is crazy. Cash is king. Invest only what you can afford to lose, and hoard everything else!!!

 

[BoeingBoy]

Reading the US press release, it sounds like this is nothing more than an announcement (reminder) of a provision of the Convertible Notes when they were issued. The only new info seems to be that US will pay cash for surrendered notes and forgo their option of converting the notes to common stock. I doubt it has much effect on the stock price since debt is retired but cash is reduced by a like amount - liabilities are reduced but assets are reduced by the same amount. But $78 million when you're talking about a $10+ billion/year company is pocket change.

US often has bigger percentage changes in it's stock price merely because of the stock price. So far today US' stock is up less in absolute price than several other airlines, but the lower trading price results in a bigger percentage gain.

Jim

 

[nycbusdriver]

Actually...the borrowers are excercising their put option, which means the borrowers are forcing US to pay them back. This is usually a bad thing, as it would typically mean they no longer view 7% a suitable return for the risk. However, US stock is up with the rest of the market today, but at greater % (and exceeding United). Obviously the market as a whole isn't concerned and could see it as a positive (reducing expensive debt).

The bonds were a private placement, so the most likely scenario in my mind is that the bondholder needed some quick cash, or was under some mandate to diversify their portfolio (maybe they were too concentrated in airlines).

I think you mean the LENDERS are forcing US to pay them back.

 

[BoeingBoy]

Actually, according to the company's press release as well as SEC filing the put option has been in the notes since they were issued in 2005 so the company is just fulfilling one of the terms of the notes as required. The only real news is that the company will repurchase the notes for cash and forgo it's option to exchange the tendered notes for common stock or a mixture of stock and cash.

Jim

 

[back2CLT]

I think you mean the LENDERS are forcing US to pay them back.

Yes...that is what I meant. After re-reading the release though, I agree that what Boeing Boy said is closer to what is happening. These bonds had 2 "put" periods/windows what the bondholders could force US to repay the bonds at full face value. Sept of 2010 and Sept of 2015 (with them maturing in Sept 2020). US is just notifying the bondholders that they have a couple weeks left to redeem the bonds for cash.

As that is the case, unless a bondholder actually excercises this option, there is really nothing of any interest.