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The 4.25% Solution
By Mark Evans | October 3, 2007
Here’s Motley Fool’s take on Nortel recently redeeming $1.125-billion of 4.25% senior convertible notes that were due next September.
Good news, right? You’d think so. Nortel has been saddled with debt for so long that any meaningful balance-sheet progress is likely worth celebrating. But is it here? Honestly, I’m not so sure. Look at that interest rate again. Who else do you know is borrowing $2 billion in capital for 4.25%?
By choosing to pay off this debt early, management is admitting that it has no idea how to earn more than 4.25% on the capital it has at its disposal. There could be other reasons, but in general, I view this as pretty sad.
Correction: Amid a bunch of comments, the Motley Fool comment is inaccurate, if not erroneous.
To be fair to Nortel, the company completed the redemption using the net proceeds from its offering of US$1.15-billion aggregate principal amount of senior unsecured convertible notes completed in March 2007. The offering consisted of $575-million due in 2012 and $575-million due in 2014. The 2012 notes pay interest semi-annually of 1.75% while the 2014 notes pay interest semi-annually at 2.125%.
Topics: Financials |