Please ensure Javascript is enabled for purposes of website accessibility

Why Shares of IMAX Plunged 12.6% Today

By Travis Hoium - Mar 16, 2021 at 1:31PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

A big debt offering has investors nervous today.

What happened 

Shares of IMAX Corporation (IMAX -2.19%) dropped as much as 12.6% on Tuesday after the company announced a big debt offering. The stock continues to trade sharply lower and was off 11.7% at 12:55 p.m. EDT. 

So what

Management announced a proposed convertible senior note offering after the market closed yesterday and that's what investors are reacting to. The initial proposal is to sell $200 million of debt that could be converted into cash or stock in the future. Details around conversion or the price of the offering won't be known until this deal is priced by the market but the notes are expected to be due in April 2026. 

Woman sitting in a movie theater alone.

Image source: Getty Images.

Management expects to use this debt to pay down $150 million of debt under the company's credit facility and use the remainder for working capital and other general corporate purposes. The key thing to understand is that a majority of the net debt will be used to pay down other debt, so the balance sheet shouldn't change all that much. 

Now what

What investors could be reacting to is the convertible nature of this debt offering. Sometimes, companies give up some of their upside in convertible debt but that can be the cost of getting lower interest rates than would otherwise be available. Given that the credit facility is being paid down this isn't a move I would be too concerned about it, but the market feels differently today. 

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

IMAX Corporation Stock Quote
IMAX Corporation
IMAX
$15.66 (-2.19%) $0.35

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
345%
 
S&P 500 Returns
119%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 05/16/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.