PNM Resources Announces Offering of Junior Subordinated Convertible Notes due 2054
PNM Resources (NYSE: PNM) announced a private offering of $500 million in junior subordinated convertible notes due 2054 to qualified institutional buyers. The notes may potentially increase by an additional $50 million for over-allotments. These unsecured notes rank junior to existing senior debt and may defer interest payments for up to 20 semi-annual periods. Redemption is possible post-June 2029, under specific conditions, and holders can convert the notes into common stock or cash. Proceeds will be used to repay term loans, and the offering is not registered under the Securities Act.
- Offering of $500 million in junior subordinated convertible notes with a potential $50 million over-allotment.
- Proceeds are intended to repay outstanding term loans, potentially improving financial stability.
- Deferral option for interest payments up to 20 semi-annual periods may provide financial flexibility.
- Convertible feature allows conversion into common stock, potentially reducing debt obligations.
- Convertible notes are unsecured and subordinate to existing senior debt, increasing risk.
- Interest deferral may lead to compounded interest, increasing future payment obligations.
- Conversion into common stock could lead to shareholder dilution.
- Redemption restrictions and conditions could limit flexibility.
Insights
The announcement of PNM Resources' junior subordinated convertible notes offering has several critical implications for potential investors. Issuing
Convertible notes are a hybrid financial instrument that initially act as bonds, paying interest, but can later be converted into a predetermined number of shares. This dual characteristic can attract investors interested in both fixed income and potential equity upside.
The key information investors should be aware of includes the subordination of these notes, meaning they will rank junior to the company's other senior debt. This implies higher risk compared to senior bonds, which usually translates to higher interest rates. Moreover, the flexibility for PNM Resources to defer interest payments up to 20 consecutive semi-annual periods adds another layer of risk, as investors may not receive timely interest payments.
From a financial perspective, the use of proceeds to repay existing term loans can be interpreted positively, as it may improve the company's balance sheet by replacing short-term obligations with long-term debt, potentially lowering interest costs over time. However, the long maturity date in 2054 indicates a prolonged obligation, which could be a concern if the company's future cash flows are uncertain.
The market reception of convertible notes offerings depends largely on investor sentiment and the company's perceived future performance. Convertible notes are typically well-received during bullish market conditions as they offer a way to participate in the company's equity upside while providing downside protection through interest payments.
Analyzing PNM Resources' target market and investor base, the long-term nature of these notes (maturing in 2054) suggests a strong belief by the company in its sustained performance and stability. Investors should be cautious of the terms that allow for the deferral of interest payments, as this flexibility, while useful for the company, could indicate potential cash flow management issues.
The option for early redemption under specific conditions, such as tax events or significant changes in stock price, adds a strategic element for both the company and investors. For PNM Resources, this flexibility allows maneuvering in response to market changes, while for investors, it emphasizes the importance of closely monitoring such events that could trigger early redemption.
Final terms of the convertible notes, including the initial conversion rate, interest rate and certain other terms of the convertible notes, will be determined at the time of pricing. The convertible notes will be unsecured obligations of PNM Resources and will rank junior and subordinate in right of payment to the prior payment in full of PNM Resources' existing and future senior indebtedness. Interest on the convertible notes will be paid semiannually, subject to PNM Resources' right to defer payments of interest as described below. The convertible notes will mature on June 1, 2054, unless earlier converted, redeemed or repurchased in accordance with their terms.
So long as no event of default with respect to the convertible notes has occurred and is continuing, PNM Resources may, at its option, defer interest payments on the convertible notes on one or more occasions for up to 20 consecutive semi-annual interest payment periods. During any deferral period, interest on the convertible notes will continue to accrue at the then-applicable interest rate on the convertible notes. In addition, during any deferral period, interest on deferred interest will accrue at the then-applicable interest rate on the notes, compounded semi-annually, to the extent permitted by applicable law.
PNM Resources may not redeem the convertible notes prior to June 6, 2029 except upon the occurrence of certain tax events, rating agency events or treasury stock events (each, a "special event"). PNM Resources may redeem for cash all, but not less than all, of the convertibles notes upon the occurrence of a special event, at a redemption price equal to
Prior to December 1, 2053, holders will have the right to convert their convertible notes only upon the occurrence of certain events and during certain periods. On or after December 1, 2053, holders will have the right to convert their convertible notes at any time until the close of business on the second business day immediately preceding the maturity date of the convertible notes. Upon conversion of the convertible notes, PNM Resources will (1) (a) deliver an equal aggregate principal amount of a newly issued series of its non-convertible junior subordinated notes with the same terms as the convertible notes (other than the conversion features) or (b) in certain circumstances as set forth in the indenture that will govern the convertible notes, pay cash, in either case, up to the aggregate principal amount of the convertible notes being converted, and (2) deliver shares of PNM Resources' common stock in respect of the remainder, if any, of PNM Resources' conversion obligation in excess of the aggregate principal amount of the convertible notes being converted.
If PNM Resources undergoes a fundamental change (as defined in the indenture that will govern the convertible notes), subject to certain conditions and exceptions, holders of the convertible notes may require PNM Resources to repurchase for cash all or any portion of their notes at a fundamental change repurchase price equal to
PNM Resources intends to use the net proceeds from this offering to repay a portion of its outstanding term loans.
This press release shall not constitute an offer to sell or a solicitation of an offer to buy, nor shall there be any sale of these securities in any jurisdiction in which such an offer, solicitation or sale would be unlawful. The offer and sale of the convertible notes, the non-convertible junior subordinated notes issuable upon conversion of the convertible notes, if any, and shares of common stock issuable upon conversion of the convertible notes, if any, have not been, and will not be, registered under the Securities Act or the securities laws of any other jurisdiction, and the convertible notes, such non-convertible junior subordinated notes and such shares of common stock may not be offered or sold without registration or an applicable exemption from registration requirements.
Background:
PNM Resources (NYSE: PNM) is an energy holding company based in
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Safe Harbor under the Private Securities Litigation Reform Act of 1995
Certain statements contained in this press release are "forward-looking statements" under federal securities laws. These statements are based upon management's current expectations and are subject to risks and uncertainties that could cause actual results to differ materially from those contemplated in the forward-looking statements. Readers are cautioned not to place undue reliance on these statements. Forward-looking statements include, among other things, statements concerning the anticipated terms of the convertible notes being offered, the completion, timing and size of the offering and the intended use of proceeds.
Factors that could cause actual results to differ materially from those contemplated in any forward-looking statements include, but are not limited to: market conditions, including market interest rates; the trading price and volatility of PNM Resources' common stock; and risks relating to PNM Resources' business, including those described under the headings "Disclosure Regarding Forward Looking Statements" and "Risk Factors" in the company's Annual Report on Form 10-K for the year ended December 31, 2023, and in subsequent reports filed with the Securities and Exchange Commission. For a discussion of risk factors and other important factors affecting forward-looking statements, please see the company's Form 10-K, Form 10-Q filings and the information included in the company's Forms 8-K with the Securities and Exchange Commission, which factors are specifically incorporated by reference herein. There can be no assurance that the planned offering of convertible notes will be completed on the anticipated terms, or at all. Except as may be required by law, PNM Resources expressly disclaims any obligation to update any forward-looking information.
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SOURCE PNM Resources, Inc.
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