Puttable bonds have continued to cause problems for US issuers over the past 12 months. Deals were done on terms that at the time seemed attractive, if not almost free for some. Now many of those puttable convertibles are trading so far out of the money that investors, whether straight convertible players or the hedge funds that now seem to own up to 80% of US convertible outstandings, are choosing to exercise their puts rather than wait around for stock prices to improve.
And that can leave some issuers facing a liquidity crisis. Sanmina Corporation, one of the largest electronics companies in the US, was one such company, but it acted early and decisively. It had a $707 million puttable bond on the horizon in 2005 and another, for $682 million, due to mature in 2004. It also had a $200 million account-receivables securitization deal up for renewal in 2003. "These were two sizeable converts which were weighing on the company's stock price and medium-term funding outlook," says Joe McGrath, head of US high-yield debt at Goldman Sachs. "There were some nervous banks out there. It was a fairly large obstacle for the company."
Sanmina also has a three-year revolving credit facility with its banks due for renewal in 2004.