PNM Resources Closes Offering of $500 Million 5.75% Junior Subordinated Convertible Notes due 2054
PNM Resources (NYSE: PNM) has closed a private offering of $500 million in 5.75% junior subordinated convertible notes due 2054. The initial purchasers have a 13-day option to buy up to an additional $50 million for over-allotments. These unsecured convertible notes are junior to PNM's senior debt. Interest is set at 5.75% per annum, paid semi-annually, with deferral options for up to 20 semi-annual periods. The notes are convertible to shares of PNM stock at an initial rate of 22.4911 shares per $1,000 principal, equating to a conversion price of approximately $44.46 per share. The proceeds will be used to repay part of PNM's term loans.
- $500 million raised through convertible notes offering.
- Interest rate set at 5.75% per annum.
- Convertible notes due in 2054, providing long-term financial planning.
- Option for initial purchasers to buy an additional $50 million.
- Convertible rate of 22.4911 shares per $1,000 principal amount, initial conversion price at $44.46 per share.
- Funds will be used to repay existing term loans, improving financial stability.
- Convertible notes are unsecured and subordinate to senior debt.
- Interest payment deferral up to 20 semi-annual periods may increase future liabilities.
- Redemption restrictions before June 6, 2029, limiting liquidity.
- Conversion rate adjustment may affect share dilution.
- Requirement to repurchase notes if a fundamental change occurs.
Insights
PNM Resources' recent issuance of $500 million in 5.75% junior subordinated convertible notes due 2054 represents a significant move in the company's capital structure strategy. These notes are junior subordinated, meaning they rank below senior debt in the event of liquidation, making them riskier but typically offering higher yields to investors.
Given the long maturity date, these notes reflect a long-term view on interest rates and financial stability. The 5.75% interest rate suggests that PNM Resources is willing to pay a premium to secure this financing, which could indicate a higher risk associated with these notes from a credit perspective. The company's ability to defer interest payments for up to 10 years is an interesting feature, providing PNM Resources with financial flexibility but potentially at the cost of increased interest accruals.
The convertible feature, allowing noteholders to convert to equity, shows confidence in the future value of PNM Resources' stock. The initial conversion price of $44.46 per share represents a 17.5% premium over the current stock price, which could be attractive to investors if they anticipate stock appreciation. However, the complex nature of these financial instruments, including the conversion and redemption terms, introduces various layers of risk and opportunity that need careful consideration. Retail investors should be aware of how these features could impact their potential returns.
Overall, this offering allows PNM Resources to repay a portion of its outstanding term loans, potentially improving its debt profile. However, the complexity and features of these notes require a detailed understanding before investment.
The issuance of these convertible notes under Rule 144A suggests that PNM Resources is targeting qualified institutional buyers, which implies a more sophisticated investor base. Rule 144A provides a safe harbor from the registration requirements of the Securities Act, enabling the company to raise capital more efficiently. This move not only streamlines the offering process but also underscores the company's need to access quick capital without the lengthy procedures associated with public offerings.
The various conditions around conversion, redemption and deferred interest payments are standard for such instruments but require thorough legal scrutiny. Potential investors must familiarize themselves with these terms, as failing to understand them could lead to unexpected financial consequences. The option to defer interest payments up to 10 years could be a double-edged sword, providing cash flow flexibility to PNM Resources but potentially compounding interest obligations to investors.
Significantly, the legal terms around the redemption and conversion clauses, including special events and adjustments in conversion rates due to corporate events, must be understood in detail. These provisions protect both the company and the investors under various future scenarios, stabilizing investor expectations while providing the firm with strategic leeway.
The convertible notes are unsecured obligations of PNM Resources and 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 semi-annually, 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 and certain features in relation to redemption rights) 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 will 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
Contacts:
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Lisa Goodman | Corporate Communications |
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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 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 and risks relating to PNM Resources' business, including those described under the headings "Disclosure Regarding Forward-Looking Statements" and "Risk Factors" in PNM Resource'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 PNM Resource's Form 10-K, Form 10-Q filings and the information included in PNM Resource's Form 8-K with the Securities and Exchange Commission, which factors are specifically incorporated by reference herein. 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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