Renewable Energy Group Inc. (NASDAQ: REGI) recently announced plans to issue fresh debt to enable it to raise funds to retire a portion of its debt, repurchase some of its shares and use for working capital. The company is targeting to issue $125 million worth of convertible notes that will mature in 2036. The debt issuance will be carried out through a private placement arrangement with institutional buyers, the company disclosed in a securities filing.
A careful look at Renewable Energy Group Inc. (NASDAQ: REGI)’s press release about the debt issuance makes you feel that the transaction is not yet sealed. For example, the company takes of the notes issuance being subject to market conditions, which should imply that unfavorable conditions would keep the company off the debt market.
What’s the money for?
Renewable Energy Group Inc. (NASDAQ: REGI) said it intends to spend about $50 million raised through the note issuance to retire some of its convertible notes early. In particular, the management is hoping to repurchase convertible notes with the maturity date of 2019.
According to the management, retiring the notes early will help raise the company’s stock price or at least prevent decline in the company’s common stock price. REGI speculates that when it retires the 2019 notes early, their holders might return to the open market to purchase the company’s shares, thus creating some sort of strong demand for the stock.
Besides channeling $50 million to retire a portion of the 2019 notes, REGI also hopes to use about $30 million of the net proceeds from the fresh notes to buy back some of its common stock. It doesn’t specify how many shares it hopes to repurchases, but it says the buyback will strengthen its share price.
In the event that some of the note holders whose notes are repurchased decide to buy the fresh notes with maturity of 2036, REGI hopes to use the extra income to increase its stock buyback of retirement of the 2019 notes.
Renewable Energy Group Inc. (NASDAQ: REGI) working capital
If after the retirement of the 2019 notes and repurchase of common shares Renewable Energy Group Inc. (NASDAQ: REGI) is still left with some funds, the management will channel them to working capital.