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Post by patience1 on Oct 24, 2024 13:16:11 GMT -5
If the price is chained to that $5.21 price than why do we have analysts(covering MNKD) with price targets well above that price?
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Post by prcgorman2 on Oct 24, 2024 13:59:52 GMT -5
I'll give your question a shot and don't shoot the messenger if I get this wrong.
$4 per share is the convertible bond price that netted $230M in bond debt. If we assume each bond was $1000, then each bond represented 250 shares. $230M divided by $1000 = 230K bonds representing 57.5M shares (at $4/share).
The "conversion price" is the price MannKind pays per share to retire the bond. The conversion price is 130% of $4 or $5.21. (The extra 1 cent to get to $5.21 is a little odd but the price per share wasn't precisely $4.) That means MannKind agreed to pay back 130% of $230M or $299M. Additionally, MannKind was obligated to pay 2.5% interest per annum on the outstanding debt.
Definitely a good deal for the bond holders, but interest rates have since increased substantially so that works in favor of bond holders having an incentive to have the debt retired sooner rather than later. There is a "call price" which is 130% of the "conversion price". 130% of $5.21 is a hair over $6.77 per share.
The debt gets repaid at maturity, or can be retired if the call price was met or exceeded for 20 out of 30 trading days in a previous quarter. i.e., if MNKD share price meets or exceeds $6.77-ish for 20 out of 30 trading days in the 4th quarter, MNKD could retire the debt in January 2025.
There are a slew of terms and conditions that affected the date when the debt could first be retired, and how much can or has to be retired or left outstanding that I haven't followed and don't remember.
The bottom-line for me is MannKind needs $300M in cash when the debt comes due to avoid dilution altogether. MannKind has the option to choose the combination of shares of MNKD and cash. If for example MNKD is trading at $7/share, I assume that's the value that would be used to dilute. If we assume MannKind will have $200M in disposable cash at the time of retirement, they'll need $99M and change in shares at $7/share which is 14.13M shares worth of dilution which I think would be about a 5% dilution.
This is all going from memory and skipping over stuff and using hypotheticals. Caveat emptor.
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Post by cretin11 on Oct 24, 2024 14:54:24 GMT -5
If the price is chained to that $5.21 price than why do we have analysts(covering MNKD) with price targets well above that price? The answer to that is as mysterious as the identity of Binder's "special projects"  |
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Post by prcgorman2 on Oct 24, 2024 15:42:27 GMT -5
If the price is chained to that $5.21 price than why do we have analysts(covering MNKD) with price targets well above that price? The answer to that is as mysterious as the identity of Binder's "special projects" Well, a short answer is, I think, we're not chained to $5.21 really. We're already well above that and seem to be able to maintain that position and a good earnings call and 1 or 2 readout catalysts could position MNKD closer to the rosy(?) analyst price targets and that should help reduce any dilution we might encounter if/when MannKind retires the $230M in convertible bonds. |
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Post by sr71 on Oct 24, 2024 17:33:33 GMT -5
My current thinking is that Mannkind should be in no hurry to payoff this debt, which is only costing 2.5% per year.
Today's new lending rates are far above 2.5%.
Also, later payoff by Mannkind would be through the use of "further-depreciated" (cheaper) dollars.
Perhaps by waiting for the full maturity date, additional cash on hand should be somewhat more plentiful (assuming MNKD remains profitable).
By then, many of us believe that the SP will be significantly higher than it is today, so fewer issued shares for sourcing the remaining payoff cash would needed (so less dilution).
I do not believe that early payoff would meaningfully help SP in short (or medium) term, instead the associated share dilution would tank the SP.
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Post by BD on Oct 29, 2024 6:57:17 GMT -5
It sounds pretty much like as reason people lean toward not selling their homes if they've got a cheap mortgage locked in during these high interest rate times.
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Post by anderson on Oct 29, 2024 11:27:00 GMT -5
My current thinking is that Mannkind should be in no hurry to payoff this debt, which is only costing 2.5% per year. Today's new lending rates are far above 2.5%. Also, later payoff by Mannkind would be through the use of "further-depreciated" (cheaper) dollars. Perhaps by waiting for the full maturity date, additional cash on hand should be somewhat more plentiful (assuming MNKD remains profitable). By then, many of us believe that the SP will be significantly higher than it is today, so fewer issued shares for sourcing the remaining payoff cash would needed (so less dilution). I do not believe that early payoff would meaningfully help SP in short (or medium) term, instead the associated share dilution would tank the SP. You forgot the arbitrage on interest rates they have. Last quarter Cash and cash equivalents Short-term investments 151,118,000 so more than half of the Senior convertible notes 227,577,000 Interest income, net 3,177,000 (2% 0f 151 mil, 1.4% of the 227 mil for the quarter. 1.4x4=5.6% hence if that continues it will pay for the interest charged on the whole 227 mil, plus a nice return) Also many have missed this in the holders section when they convert " Upon conversion, the Company will pay or deliver, as the case may be, cash, shares of the common stock or a combination of cash and shares of common stock, at the Company’s election, in the manner and subject to the terms and conditions provided in the Indenture." MNKD can always pay in cash instead of shares. So right now they have no reason to force early conversion. |
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