Why Tower Semiconductor Ltd. Shares Popped Today

Is Tower Semiconductor's jump meaningful? Or just another movement?

Mar 20, 2014 at 5:19PM

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Tower Semiconductor Ltd. (NASDAQ:TSEM) -- also known as TowerJazz -- jumped more than 10% during Thursday's intraday trading after the foundry specialist signed agreements with bondholders to strengthen its balance sheet.

So what: Specifically, in exchange for approximately $45 million in principal of the roughly $94 million in existing 8% bonds due June, 2015, TowerJazz is issuing new unsecured bonds due December 2018. The new bonds also carry an interest rate of 8% and can be converted into ordinary shares of Tower at $10.07 per share -- a 15.3% premium over yesterday's close. In addition, certain bondholders have agreed to purchase roughly $10 million in principal of the new bonds.

Now what: Describing the exchange and new note purchase as a "vote of confidence from the investment community," TowerJazz CFO Oren Shirazi elaborated, "The $70 million Wells Fargo credit line extension we signed a few months ago, together with this transaction, are instrumental in enabling TowerJazz to execute on its strategic growth plan and further improve our balance sheet and financial position."

Even with shares trading at only 5 times next year's estimated earnings, don't be fooled (with a lowercase "f") by TowerJazz's rock-bottom valuation. As of the end of last quarter, remember, this small $450 million company was inundated with over $350 million in debt. And just like its new 2018 bonds, much of the debt is convertible into common shares, so that could result in substantial dilution going forward.

However, by pushing some of its obligations back to 2018, TowerJazz has effectively found some breathing room to implement its long-term growth initiatives. In the end, if it can successfully do so -- and if you don't mind the risk of a balance sheet that might best be described as "less ugly" now -- I think the stock could still reward investors down the road.

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Steve Symington has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

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The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

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KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

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Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

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David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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