Why Infinera Corp. Shares Fell 10% Today

What happened

Shares of Infinera (NASDAQ: INFN) closed 10.2% lower on Thursday. The maker of telecom-grade systems for optical networking is preparing to take on a substantial amount of new debt.

Continue Reading Below

So what

After the closing bell on Wednesday, Infinera announced that it will sell $275 million of convertible senior notes, giving the underwriters an option to purchase another $41.3 million of notes if they so desire. The cash raised from this offering will largely be used to finance the recently announced $430 million buyout of fellow optical networking expert Coriant.

Now what

Investors have been aware of the Coriant deal since July 23, but the financing details behind that buyout were never terribly clear. On the deal announcement, Infinera simply said this it would cover some of the cash costs through a simple loan and was "exploring various longer-term financing options" to handle the rest.

Now we know that Infinera is going with an unsecured senior notes structure, due for maturation in 2024. An included capped call framework is intended to reduce the dilution for existing shareholders in case some or all of the notes are converted into new Infinera shares. The full $275 million debt infusion amounts to roughly 21% of Infinera's market cap as of Wednesday. Today's price drop amounts to investors bracing for a partial conversion into new shares — an option that hadn't been explicitly introduced until last night.

Advertisement

10 stocks we like better than InfineraWhen investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has quadrupled the market.*

David and Tom just revealed what they believe are the 10 best stocks for investors to buy right now… and Infinera wasn't one of them! That's right — they think these 10 stocks are even better buys.

Click here to learn about these picks!

*Stock Advisor returns as of August 6, 2018

Anders Bylund has no position in any of the stocks mentioned. The Motley Fool recommends Infinera. The Motley Fool has a disclosure policy.

Source: Read Full Article