Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



Akamai Refinances

The Mortgage Bankers Association says homeowners refinanced more than $2.3 trillion during 2003. On Tuesday, Internet content network provider Akamai Technologies (Nasdaq: AKAM  ) added $200 million to that total. Well, sort of.

Let me explain. Akamai has announced a plan to buy back up to $101 million of its 5 1/2% convertible notes via what's called a "Modified Dutch Auction." No, the company won't be selling clogs and windmills to raise cash. Despite the funny name, the format is a popular way for companies to cheaply buy back its debt or shares through bids from investors who want to dump their holdings. A number of firms have recently used the practice, including Stocks 2003 pick Cemex (NYSE: CX  ) and PETCO (Nasdaq: PETC  ) .

The buyback offer, which closes March 10, comes barely a month after Akamai raised $200 million in 1% convertible debt. It used $99 million of those proceeds to repurchase roughly one-third of its 5 1/2% notes in January. The twist is that the company should end up exactly where it was in December, with $300 million in convertible notes, but paying a lower rate ($200 million paying 1% and $100 million paying 5 1/2%). That's right, just like millions of Americans, Akamai refinanced.

Was the trouble worth it? I'd say so. By shaving 4 1/2% off roughly $200 million in debt, Akamai will save about $9 million in interest payments annually. That's real money that it needs badly. After all, $300 million is a hefty sum. Post-auction, Akamai will see its $200 million in liquid assets drop to $100 million, with $60 million of it in cash.

That's a pretty deep cut, but it has to be done. Akamai was partying like it was 1999 back in, um, 1999, and piled up huge debts as a result of the dot-com boom. Sometimes tough love (or the occasional early morning beer) is needed to get through a hangover.

Fortunately, the headaches usually aren't permanent, and with the refinancing, Akamai is showing that it's probably old enough to know to avoid guzzling too many $5 beers. I hope so. Investors can't afford another binge.

Are you considering refinancing? How about buying a home? Meet hundreds of other Fools who've been there at the Buying or Selling a Home discussion board. Or check out our Home Center for information and deals on home loans.

Motley Fool contributor Tim Beyers doesn't do the late-night drinking binges anymore, but he loves the occasional breakfast at 2 am. He doesn't own shares of any of the companies mentioned, and takes invites for rolled-up eggs over toast with a side of bacon here. Just be sure you have a pot of decaf handy.

Read/Post Comments (0) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 505573, ~/Articles/ArticleHandler.aspx, 10/22/2016 7:46:14 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated 22 hours ago Sponsored by:
DOW 18,145.71 -16.64 -0.09%
S&P 500 2,141.16 -0.18 -0.01%
NASD 5,257.40 15.57 0.30%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

10/21/2016 4:00 PM
AKAM $57.67 Up +0.94 +1.66%
Akamai Technologie… CAPS Rating: ****
CX $9.14 Up +0.13 +1.44%
Cemex CAPS Rating: ***