Please ensure Javascript is enabled for purposes of website accessibility

Why Allegheny Technologies Incorporated's Shares Plunged 13% Today

By Travis Hoium - May 18, 2016 at 12:38PM

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

Could a new debt offering be bad for Allegheny Technologies Incorporated shareholders?

Image source: Allegheny Technologies.

What: Shares of specialty materials maker Allegheny Technologies Incorporated (ATI -6.25%) dropped as much as 13% in early trading Wednesday after the company announced a new debt offering. By noon ET, the stock was down 10.7%.

So what: Allegheny is planning to offer a series of convertible senior notes, although it hasn't yet divulged how much money it's planning to raise or what the price of the offering will be. Management plans to use the funds to make required contributions to defined benefit pensions or the repayment or refinancing of debt.  

Convertible debt can often be attractive for companies because it comes with a lower interest rate than standard debt, but the downside is that the conversion of debt into equity of the stock rises could dilute shareholders.

Now what: In the first quarter of 2016, Allegheny reported a $101 million loss and a debt load of $1.65 billion, so it's in a precarious financial position. A new debt offering may help reduce interest payments and other liabilities on the balance sheet, but it will also reduce current investors' upside if the company recovers in the future. That's why there's such a big reaction today. Watch for the offering to be priced in the next couple of days and then we'll know more about the dilution potential and cost to the company of the new debt.  

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

Allegheny Technologies Incorporated Stock Quote
Allegheny Technologies Incorporated
$24.50 (-6.25%) $-1.64

*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
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 05/20/2022.

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.