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 TAL Education Group (NYSE: XRS ) jumped as much as 10% today after pricing $200 million of convertible debt it put on offer earlier this week.
So what: The provider of afterschool tutoring services in China said this morning that the convertible senior notes due 2019 it plans to issue would pay an interest rate of 2.5% and be convertible to stock at a price of $26.29. This means it would only be in the debtholders' interest to convert the notes to stock if TAL's share price exceeds $26.29. With shares currently trading around $22, shareholders appeared to believe that that was an adequate cushion.
Now what: Shares of TAL tumbled yesterday, closing down 20% after it announced the debt offering, so today's pricing seems to have assuaged investors to some degree. Still, shares have not fully recovered, and are trading down about 12%, indicating that investors see the debt offering as a net negative. If all the notes are converted, current shareholders would be diluted by about 10%. That may explain the stock's movement over the last day, but I'd say the debt offering is mostly noise and investors would be better off focusing on the company's fundamentals and growth potential, which look promising.
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