Letter of the week
I've studied the MS term loan (100+ pages, and written in legal/financial gobbly-****). I wrote to a few analysts a couple of weeks ago that AMD
would likely be in violation of the term loan at the end of Q3 (clause 7.16), and needed to do another round of financing. The current balance of
the loan is about $1.6B. Here is what I wrote those same analysts today.
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Well, looks like I was right on a couple of counts. AMD was going to be in
violation of their MS term loan at the end of Q3, and thus, needed to get
the financing done soon (optimally, before IDF, and perhaps before Sept.
10th launch of Barcelona) to pay off the MS term loan.
In April, rumors were about Barcelona being better than expected, and was
demoed at 2.9Ghz. They got the $2.2B convertible done, and a month later in Taiwan, Barcelona at <2Ghz was shown. Last week, we get rumors about Barcelona being at 3+ghz by December, and this week, we get a new round of financing (a new $1.5B convertible).
If AMD was confident about 3Ghz Barcelona in December, it would have made more sense for them to wait until Sept. 10th, put 3Ghz on their official roadmap, and announce the financing then. Also, if they though initial Barcelona's were going to be good, wouldn't they release independent benchmark results, before doing the new financing?
This new round will not be enough for AMD. But by monetizing their other assets (selling rest of Spansion, selling the Austin office buildings and
leasing them back, and selling 200mm equipment in Fab 30), they should be able to get by for the next 6-9 months; in other words, enough time to fix
Barcelona, which may get them to cash-flow neutral for a short time. Sometime along then, they will need to raise more cash. I suspect that will
involve equity.
-fred
______________________________________________________
SUNNYVALE, Calif.
-- August 8, 2007 --Advanced Micro Devices, Inc. (NYSE:
AMD) today announced its intention to offer, subject to market and other
conditions, $1.5 billion aggregate principal amount of convertible senior
notes in a private offering to qualified institutional buyers pursuant to
Rule 144A under the Securities Act of 1933, as amended. AMD expects to grant
to the initial purchaser a 30-day option to purchase up to $225 million
aggregate principal amount of additional notes to cover over allotments.
AMD expects to use the net proceeds of the offering, together with available
cash, to repay in full the outstanding balance of the term loan AMD entered
into with Morgan Stanley Senior Funding, Inc. in October 2006. If the
initial purchaser exercises its over-allotment option, AMD expects to use
the additional net proceeds for general corporate purposes, including
working capital and capital expenditures.
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