Shares of IMAX Corporation (IMAX -0.37%) 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.
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.
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.
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.