What happened
Shares of New Fortress Energy (NFE 0.28%) plummeted 10.8% as of 11:50 a.m. EST Wednesday, falling alongside shares of Atlas Corp (ATCO), down 12.2%, and iQIYI (IQ 5.38%), with the worst performance of all at a 14.8% decline. Now what do a natural gas infrastructure company, a containership manager, and a Chinese video streamer have in common, you may ask?
They're all taking out loans today -- and one of them is also selling shares.
Image source: Getty Images.
So what
Let's take these one at a time, beginning with New Fortress Energy, which announced yesterday after close of trading that it is placing $250 million worth of "6.750% senior secured notes due 2025" with private investors. New Energy says it plans to use the cash "for general corporate purposes."
This is curious because, on the face of it, New Energy wouldn't seem like the kind of company that should need to take on debt to fund its operations. According to data from S&P Global Market Intelligence, it reported $290 million in profit over the past year. Sadly though, New Fortress' cash flow statement belies this apparent profitability, with free cash flow running negative $165 million through the first three quarters of this year.
So as it turns out, New Energy kind of does need the cash -- and its debt load will now rise to nearly $5.8 billion total, including the value of long-term leases.
Next up, Atlas Corp -- owner of the Seaspan containership corporation. Atlas is having Seaspan do a private placement of at least $175 million worth of "exchangeable senior notes due 2025," and potentially more than $201 million, as it is giving its purchasers the option to buy an additional $26.25 million in notes.
Like New Fortress, Atlas and Seaspan intend to use the bulk of their new cash for general corporate purposes, and clarify that these "may include funding acquisitions, repayment of debt, capital expenditures, potential acquisitions and partially financing the pre-delivery of payments for Seaspan's recently announced newbuilding vessels." The added debt will push Atlas' imputed debt load up toward $5.4 billion, total.
Now what
And now, for something just a little bit different: iQIYI, which is also taking on more debt to counterbalance the nearly $1.2 billion it has lost over the past year -- but also issuing new shares that will dilute its shareholders' ownership interest in the company.
iQIYI's announcement, which came out last night, describes a plan to raise at least $800 million through the sale of "convertible senior notes due 2026" (and possibly as much as $900 million if underwriters exercise an option to buy another $100 million in notes). The company also plans to sell at least 40 million American depositary shares, and potentially as many as 46 million (yep, another overallotment option).
iQIYI didn't state a price for the American depositary shares it will be selling, leaving that up to "market conditions" to determine. At recent prices, however, the share offering promises to add as much as $866 million to the perhaps $900 million raised from the debt offering. That's nearly $1.8 billion total, more than enough to finance another year's losses similar in size to what it lost over the past year. Issuing all these new shares will, however, also dilute iQIYI's shareholders out of roughly 5.9% of their ownership interest in the stock.
No wonder investors are upset. No wonder they're selling -- and no wonder iQIYI's stock price decline today dwarfs those that we're seeing at New Fortress and Atlas.