There is something that doesn’t make the board and management of American DG Energy Inc. (NYSEMKT: ADGE) comfortable: the amount of convertible debt outstanding. The company has now kicked off a process that would see its outstanding convertible debt reduced significantly. With that, the company is promising shareholders that the future is bright.
A series of transactions
American DG Energy Inc (NYSEMKT: ADGE) has entered into some agreements to help it reduce the amount of its convertible debt outstanding. The idea is to cut outstanding convertible debt to $17.7 million where they were at the end of 2015 to $3.4 million or lower if possible.
Reducing convertible debt should also remove the risk of stock dilution, which should in turn preserve value for existing shareholders.
Selling stake in EuroSite Power
To enable it trim its convertible debt position, American DG Energy Inc (NYSEMKT: ADGE) has decided to offload a portion of its stake in EuroSite Power Inc (OTCMKTS: EUSP). It will trade 9.7 million shares in EuroSite for a reduction of a portion of its convertible debentures maturing May 2018.
Furthermore, the company will sell some 5.5 million shares in EuroSite and use the proceeds to pay another portion of its convertible debt outstanding. Some warrants to purchase the company’s shares will also be cancelled as part of the agreements.
At the end of the day, American DG Energy will have cut its outstanding convertible debt to only $3.4 million. But the transaction will also have a hit on its stake in EuroSite, which will shrink to slightly over 2%.
Given the pressure that American DG Energy will have offloaded due to the retirement of the convertible debt, the management says that reducing stake in EuroSite is a price worth paying.
The transactions to cut American DG Energy’s outstanding convertible debt are expected to close in 4Q2016.
What happened in 2Q for American DG Energy Inc. (NYSEMKT: ADGE)?
In the quarter ended June 2016, American DG Energy Inc. (NYSEMKT: ADGE) posted EPS of $0.06, exceeding the consensus estimate by $0.06. Revenue of $2.11 million rose 1.4% and also surpassed expectations.