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Equity and Debt

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American Superconductor
As you know from reading through the background materials, the decision to use debt or equity to raise money is not a decision taken lightly by management. So when several years ago, in 2003 American Superconductor decided to raise funds through equity it was definitely a major decision that required intense discussions at the highest levels of management.
Read the article below about American Superconductor and do some of your own research using the CyberLibrary and internet search engines. You can also take a look at the official American Superconductor webpage http://www.amsc.com/

Assignment Expectations:
After doing your research, apply what you learned from the background materials and write a three page paper answering the following questions:
What are the advantages and disadvantages for AMSC to forgo their debt financing and take on equity financing? Do you agree with their decision? How can a company’s cost of equity be determined? Is there a tax deduction from the use of debt financing? Please explain.
Explain both of your answers thoroughly. Be sure to support your opinions on these assignment questions with references to the background materials or to other articles in your paper.

Read the article below available in Proquest:
American Superconductor switch ; Westboro company plans to raise money through a stock offering, Andi Esposito. Telegram & Gazette. Worcester, Mass.: Aug 26, 2003. pg. E.1 from library portal via coursenet.
Abstract (summary)
“AMSC’s management and board of directors believe the decision to forgo a secured debt financing and to adopt an equity financing strategy under current market conditions is in the best interests of our shareholders,” said Gregory J. Yurek, chief executive officer of AMSC. The 265-employee company has operations in Westboro and Devens and in Wisconsin.
Finally, the Northeast blackout “shined a lot of light on the problems we have been talking about as a company for three to four years,” Mr. Yurek said. AMSC products, such as a system installed this year in the aging Connecticut grid and high temperature superconductor power cables and other devices bought by China for its grid, are designed to improve the cost, efficiency and reliability of systems that generate, deliver and use electric power. “We are a company with products out there solving problems today,” he said.
Full Text
WESTBORO — American Superconductor Corp., whose power grid products have gained heightened visibility since the Aug. 14 Northeast blackout, has scuttled plans for a $50 million secured debt financing and will instead raise the money through a public stock offering.
The company will disclose the number of shares to be sold from the company’s treasury, the amount of the expected proceeds and names of underwriters in a Securities and Exchange Commission registration statement that will be filed within two weeks, AMSC said yesterday.
AMSC had told shareholders in July that it expected to close at the end of this month on a secured debt financing package made up of a five-year term loan of up to $30 million from three groups of institutional investors, $10 million in subordinated notes and a $10 million bank credit facility.
The company hadn’t identified the investors or bank.
“AMSC’s management and board of directors believe the decision to forgo a secured debt financing and to adopt an equity financing strategy under current market conditions is in the best interests of our shareholders,” said Gregory J. Yurek, chief executive officer of AMSC. The 265-employee company has operations in Westboro and Devens and in Wisconsin.
The company’s stock, which closed yesterday at $12.20, up 60 cents on the Nasdaq Stock Market, has risen 305 percent this year.
Mr. Yurek said three factors led to the decision. First, AMSC has picked up revenue momentum and is on track toward achieving its target of $45 million to $50 million in revenue this year, more than doubling revenue of fiscal 2003.
Secondly, AMSC’s high temperature superconductor motor and generator business unit, which is working on a large U.S. Navy contract, was profitable in the first quarter ended June 30 — one quarter ahead of expectations.
Finally, the Northeast blackout “shined a lot of light on the problems we have been talking about as a company for three to four years,” Mr. Yurek said. AMSC products, such as a system installed this year in the aging Connecticut grid and high temperature superconductor power cables and other devices bought by China for its grid, are designed to improve the cost, efficiency and reliability of systems that generate, deliver and use electric power. “We are a company with products out there solving problems today,” he said.
At June 30, AMSC had cash reserves of $12.1 million. Last year the company spent $48 million to fund operations. But this year, because of cost savings and other steps, spending is forecast at $13 million to $15 million.
AMSC needs the money for general corporate purposes and to scale up manufacturing at Devens of its second-generation high temperature superconductor wire.
Copyright New York Times Company Aug 26, 2003
Word count: 446
Indexing (details)
Cite
Company/organization
Name:
American Superconductor Corp
Ticker:
AMSC
NAIC:
334419
Title
American Superconductor switch ; Westboro company plans to raise money through a stock offering: [ALL Edition]
Author
Esposito, Andi
Publication title
Telegram & Gazette
Pages
E.1
Number of pages
0
Publication year
2003
Publication date
Aug 26, 2003
Year
2003
Dateline
WESTBORO
Section
BUSINESS
Publisher
Globe Newspaper Company, Inc.
Place of publication
Worcester, Mass.
Country of publication
United States
Journal subject
General Interest Periodicals–United States
ISSN
10504184
Source type
Newspapers
Language of publication
English
Document type
NEWSPAPER
ProQuest document ID
268865037
Document URL
http://search.proquest.com/docview/268865037?accountid=28844
Copyright
Copyright New York Times Company Aug 26, 2003
Last updated
2011-09-12
Database
ProQuest Central

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