Shares of Newpark Resources Inc (NYSE:NR) fell as much as 16% on Tuesday after the company announced a debt offering. At 1:00 p.m. EST shares were still down 12.3% on the day.
Management said they're looking to sell $100 million in convertible notes, which can be converted to cash or stock at management's discretion. The offering hasn't been priced yet, so we don't know what the coupon payment might be or what the share conversion rate will be. For now, investors don't like the idea of adding debt to the balance sheet or the potential for dilution if shares rise in the future.
Management said the new debt offering will be used to retire existing debt and for general corporate purposes, although that's kind of a catch-all in debt issuance terms. What investors probably don't like is the idea that Newpark's shares could be significantly diluted after a convertible debt offering if the company recovers. Renewed hope that oil and gas drilling will pick up in coming years has increased bullish bets on the industry, so a debt offering that can convert to stock takes away some of the upside. In the next day or two we'll see how the offering is priced and that will give investors a little more information about what the market thinks about Newpark Resources' future.