PNM Resources Announces Pricing of $500 Million of 5.75% Junior Subordinated Convertible Notes due 2054
PNM Resources (NYSE: PNM) has announced the pricing of $500 million in 5.75% junior subordinated convertible notes due 2054. The notes, which will be offered privately to qualified institutional buyers, are unsecured and will rank junior to existing and future senior debt. Interest will be paid semiannually, with deferral options available. The offering includes a 13-day option for purchasers to buy an additional $50 million. The notes can be redeemed under specific conditions starting June 6, 2029. These convertible notes have an initial conversion rate of 22.4911 shares per $1,000 principal and a conversion premium of approximately 17.5%.
PNM Resources aims to close this offering by June 10, 2024, and plans to use proceeds to repay part of its outstanding term loans. This offering is not registered under the Securities Act and is available exclusively to institutional investors under Rule 144A.
- Issuance of $500 million in convertible notes enhances liquidity.
- Interest rate set at an attractive 5.75% for investors.
- Option to raise an additional $50 million covers over-allotments.
- Funds will be used to repay outstanding term loans, improving the balance sheet.
- Convertible feature may attract investors interested in equity conversion.
- Conversion premium of 17.5% indicates investor confidence.
- Convertible notes are junior and subordinate to existing senior debt, increasing risk for note holders.
- Interest deferral option could indicate potential cash flow issues.
- High reliance on institutional buyers limits investor base.
- Possible dilution of existing shares if notes are converted to equity.
- Long-term maturity until 2054 increases uncertainty for investors.
Insights
PNM Resources' issuance of $500 million in convertible notes is noteworthy for several reasons. Convertible notes are a hybrid instrument that carries the characteristics of both debt and equity, providing flexibility for the issuing company and potential upside for investors. The interest rate of
Convertible notes allow investors to convert their debt into shares of the issuing company, thereby participating in potential equity upside. The initial conversion price set at
Deferral options for interest payments are a double-edged sword. While they provide the company with financial flexibility, they introduce risk for investors who may prefer predictable income streams. The deferral of interest can lead to accrued interest and compounding, which can amplify future obligations.
For retail investors, it is essential to note that these are unsecured obligations and rank junior to other debts. This means in the event of liquidation, convertible note holders might find themselves lower in the pecking order for repayment. The long maturity period until 2054 is another point to consider, as it indicates a long-term commitment.
The ultimate use of the proceeds to repay existing term loans is a prudent move, aiming to optimize the company's debt structure. Investors should monitor how this refinancing impacts PNM's overall financial health and leverage ratios in the coming quarters.
Analyzing the broader market implications, PNM Resources' move to issue convertible notes indicates an optimistic outlook for their stock, as the conversion feature embeds an expectation of stock price appreciation. The conversion premium of
The structural aspects of the notes, including potential adjustments to the conversion rate and redemption options, offer important flexibility. However, these features also introduce complexity, making it essential for investors to closely understand the terms to gauge the potential impact on their portfolios.
From a market perspective, the successful pricing and anticipated high demand for these notes underscore investor confidence in PNM Resources' strategic direction. Retail investors should view this issuance as a part of the company’s broader capital strategy. Monitoring how the market responds post-issuance can provide insights into investor sentiment and potential stock price movements.
Moreover, the redemption clauses tied to stock performance metrics (130% of conversion price) provide a performance-driven exit strategy, aligning the interests of the company with those of the investors. This could influence PNM's operational decisions and strategic initiatives aimed at boosting stock performance over the medium to long term.
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, at a rate of
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 any time, at its option, 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.
The conversion rate for the convertible notes will initially be 22.4911 shares of PNM Resources' common stock per
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 regarding the completion of the offering of convertible notes 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; the satisfaction of closing conditions related to the offering; 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.
FAQ
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