Ciena Reaffirms, Plans To Sell Converts

October 12th, 2010 by · 3 Comments

Network equipment maker Ciena (NASDAQ:CIEN, news, filings) today moved to raise capital in the form of convertible senior notes.  The company intends to raise $175M, with the usual over-allotment of $35M if the banks overfill their quotas.  The purpose of the funds is listed as general corporate purposes, but includes the possibility of refinancing a portion of their 0.25% converts due 2013 of which there is about $265M outstanding.  That might not happen immediately of course.  Ciena is of course in the midst of a transformation, as it integrates the former Nortel MEN business, and it seems likely to me that they are mainly proactively keeping their cash levels high enough so that nobody worries while they do it.

Along those lines, Ciena also reaffirmed its fiscal Q4 guidance.  Revenue is expected to fall between $390-409M with adjusted gross margins in the low 40’s.  Given that the quarter ended almost two weeks ago EDIT: Given that the quarter is over in two weeks, we can be pretty sure that they are, well, pretty sure about that.  However, the street’s current estimates for Ciena’s revenue begin at the midpoint of that range, and therefore traders might not be as pleased as one would hope with the reaffirmation of guidance.  That said, analysts have been all over the place this year trying to predict the company’s revenue levels due to the complexity of the acquisition.

I wonder what sort of pricing they will get on these converts.  At the end of their fiscal Q3 (July 31), the company had about $470M in cash on the balance sheet.

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Categories: Financials · Telecom Equipment

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3 Comments So Far

  • Anonymous says:

    Doesn’t Ciena already have about $1.2B in debt? $470M in cash, $1.2B in debt (although much if not all of it in converts, I believe), and issuing more converts.

    Pretty heft debt load, which in the end is what crushed Nortel.

    What is the point where the converts kick into equity? I think it’s in the 20 range.

    • Rob Powell says:

      Nortel’s final death throes may have been caused by debt, but the real culprit was poor operations over a long period. Similarly, with Ciena it’s not the debt one needs to watch so much, it’s the operations and the integration of the Nortel assets.

  • Rob Powell says:

    Oops! A reader pointed out that Ciena’s Q4 isn’t over for another two weeks, so I was misstating their likely knowledge of Q4 results. Thanks! (I do make mistakes, and oddly scheduled fiscal quarters don’t mix with quick typing)

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