With shares up 156% on the year, AMD(AMD) - Get Report is looking to swap a chunk of its large debt load for stock and convertible debt. The move will dilute shareholders, but also significantly strengthen AMD's balance sheet as it goes after Intel (INTC) - Get Report, Nvidia (NVDA) - Get Report and others in a slew of big markets.
The chipmaker announced after the close it's selling $600 million worth of common stock and $450 million worth of convertible senior notes due 2026 through public offerings. Net proceeds are expected to total $1.02 billion, and will be used to pay down existing debt and credit facility borrowings. As of the time of this article, AMD was down about 4% after hours.
Assuming shares are sold near current levels, the stock portion of AMD's offerings will increase the company's share count by more than 10%. The convertible debt brings the potential for additional dilution, should AMD's shares surpass the price at which buyers are able to convert their debt into stock.
The benefit to AMD: The offerings should allow the company to remove $1.02 billion in high-interest debt from its balance sheet. About $600 million in debt will be removed outright, and the rest will be replaced with convertible debt that (while carrying the potential for further dilution) should sport a low interest rate.
AMD had over $2.2 billion in debt at the end of June, partly offset by $957 million in cash. Over $2 billion of the debt carried interest rates ranging from 6.75% to 7.75%; the remainder consisted of a revolving credit line.
The financing moves will leave AMD, which has significantly cut its R&D spend in recent years as it tried to pare its substantial losses, in better shape to increase its spending while simultaneously competing in the PC CPU, server CPU, GPU and console processor markets. That's a tall order, even after accounting for the company's recent progress.
AMD is just months away from launching the first chips based on its Zen architecture, which should put it on better footing against Intel in the PC and server CPU markets than it has been in a long time.
The company also plans to eventually launch CPUs relying on a seven-nanometer Globalfoundries manufacturing process; though still at least a couple years away, those chips could allow AMD to finally claim a process edge against Intel, given the latter has slowed the pace at which it's adopting new processes.
Meanwhile, AMD wants to challenge Nvidia's dominance of the high-end PC GPU market next year by launching chips based on its next-gen Vega architecture, and to have succeeded in 2018 by an architecture codenamed Navi. The company is still also going after the budding ARM server CPU market, and presumably wants to remain Microsoft and Sony's console processor supplier in the years to come.
Doing all of this is bound to be costly, at least if AMD wants a real chance at success. For a price, the company's stock and convertible offerings give it more breathing room to absorb near-term losses as it tries to bolster its long-term competitive position.