Why FMC Stock Was Sinking This Week
Key Points
The company is issuing $1.2 billion in secured convertible senior notes.
Much of the proceeds will be directed toward paying down other notes maturing in October.
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Agricultural chemicals specialist FMC (NYSE: FMC) wasn't an investor darling over the past few trading days. Mr. Market was displeased with the company's announcement that it was floating a new issue of debt securities, a flotation that was soon upsized; largely as a result, its shares were trading 9% lower week to date as of Friday afternoon, according to data compiled by S&P Global Market Intelligence.
Increasing the debt burden
On Tuesday, FMC announced the impending flotation of $750 million aggregate principal amount of senior secured notes.
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The issue, intended for private investors, will mature in 2031. Two days later, the company significantly increased the principal to $1.2 billion and revealed that the interest rate was 8%. The issue is expected to close on Friday, June 5.
FMC said that the proceeds of the sale will fund repurchases and redemptions of an existing senior notes issue, which, in contrast to the new notes flotation, is unsecured. That matures this Oct. 1 and pays out at a rate of 3.2%. FMC added that the monies raised will additionally be used to retire other borrowings. It also aims to use these funds for "general corporate purposes."
Not great for the balance sheet
Taking on debt that'll cost 8% to retire, while borrowing pays out at just over 3%, is not going to do wonders for either FMC's balance sheet or its profit and loss statement (the latter is where a company records interest payments).
And while it's admirable that the company can finagle a higher principal amount, it's going to add that much more weight to its existing debt burden. I'd be leery, to say the least, about investing in FMC stock these days.
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Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
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