Shares of Exela Technologies (XELA -7.00%) jumped on Thursday after the company announced a debt tender offer to try to refinance its debt. The specialist in business process automation (BPA) is up over 12% today as of this writing.
Yesterday, Exela put out a press release for a tender offer for some of its outstanding debt securities. A tender offer is an offer from a company to its debtholders to repurchase a set amount of bonds at a predetermined price. In Exela's case, it is offering $900 for every $1,000 of debt that investors bought, meaning that it is hoping its debtholders will cash out at a discount to what they paid. Exela is offering up to $225 million in cash under these conditions.
In conjunction with this news, Exela is also offering to exchange existing 2023 bonds with new 2026 bonds. The 2026 bonds will have a higher annual interest rate of 11.5% versus the 2023 bonds, which paid interest of 10% a year. This is a way for Exela to refinance its debt and extend the amount of time it has until it has to pay back its debtholders.
This refinancing is likely why Exela stock soared today. As of the end of last quarter, the company had less than $50 million in cash on hand, approximately $1.5 billion in long-term debt, and it had a net loss and negative cash flow through the first half of this year. If Exela was unable to refinance out to 2026, it is possible that the company would have been unable to pay back this debt, forcing it into bankruptcy and wiping out shareholders. With this potential extension to 2026, the company now has a lot more breathing room to improve its financials.
Even though Exela will be in better condition if this debt tender offer goes through, the company still looks to be in terrible shape. Revenue declined last quarter, and the company is operating at a net loss with negative cash flow. Even with the recent stock pop, shares are down around 90% in the last three years, which makes sense since the company was (and still may be) headed for bankruptcy.
Taking these factors into consideration, there's no reason for investors to think about buying shares of Exela Technologies, even if it is successful in refinancing its debt.