Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.
What: Shares of mortgage and fleet services company PHH Corp. (NYS: PHH) were getting pummeled by Mr. Market today, falling as much as 11% after the company announced plans to sell new debt.
So what: PHH said that it expects to sell between $150 million and $172.5 million of new convertible notes. Until the company actually prices the new debt, we won't know the rate at which the notes will convert to common shares or how much interest they'll pay, but investors are obviously a bit concerned about what the deal will mean for their positions. Since convertible notes give owners the option to convert to common equity, they can dilute current shareholders' ownership stakes.
Now what: It's been a bit of a tumultuous ride for PHH shareholders recently. A month ago, Standard & Poor's lowered some of the company's credit ratings on concerns that it may have trouble repaying debt due in early 2013. Then, just last week, the company unexpectedly announced that its CEO resigned.
Investors will want to keep a close eye on the pricing of the new notes. Not only will the pricing determine just how much potential dilution the convertible notes will bring, but it will also give a peek into how receptive the market is to financing PHH. The latter will be a key issue over the next year or so.
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