Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.
What: Shares of Tower Semiconductor Ltd. (NASDAQ:TSEM) -- also known as TowerJazz -- jumped more than 10% during Thursday's intraday trading after the foundry specialist signed agreements with bondholders to strengthen its balance sheet.
So what: Specifically, in exchange for approximately $45 million in principal of the roughly $94 million in existing 8% bonds due June, 2015, TowerJazz is issuing new unsecured bonds due December 2018. The new bonds also carry an interest rate of 8% and can be converted into ordinary shares of Tower at $10.07 per share -- a 15.3% premium over yesterday's close. In addition, certain bondholders have agreed to purchase roughly $10 million in principal of the new bonds.
Now what: Describing the exchange and new note purchase as a "vote of confidence from the investment community," TowerJazz CFO Oren Shirazi elaborated, "The $70 million Wells Fargo credit line extension we signed a few months ago, together with this transaction, are instrumental in enabling TowerJazz to execute on its strategic growth plan and further improve our balance sheet and financial position."
Even with shares trading at only 5 times next year's estimated earnings, don't be fooled (with a lowercase "f") by TowerJazz's rock-bottom valuation. As of the end of last quarter, remember, this small $450 million company was inundated with over $350 million in debt. And just like its new 2018 bonds, much of the debt is convertible into common shares, so that could result in substantial dilution going forward.
However, by pushing some of its obligations back to 2018, TowerJazz has effectively found some breathing room to implement its long-term growth initiatives. In the end, if it can successfully do so -- and if you don't mind the risk of a balance sheet that might best be described as "less ugly" now -- I think the stock could still reward investors down the road.