Brocade Communications Systems Inc. (Nasdaq: BRCD) announced Tuesday that it intends to raise $500 million by selling a convertible bond to institutional investors, due to be paid 2007 (see Brocade to Offer $500M in Notes).
The interest rate, conversion rate, and offering price must still be set. The offer is due to close this month, and Brocade will grant the initial purchasers a 30-day option to buy an additional $50 million worth of notes. Analysts say the interest rate on the bond will probably be fairly low, between 1.75 and 2.25 percent.
The debt offering was seen as a red flag by Wall Street, where initial reaction to the news prompted a sell-off of Brocades stock. The share price dropped 4.05 percent to $33.61 by midday on the Nasdaq.
Brocade said in a statement that it will use the proceeds for general corporate purposes, including working capital and capital expenditures.
Under closer scrutiny however, it would seem that Brocade has more up its sleeve for this cash than just working capital.