LSB Industries, Inc. (LXU) stock prices were up a massive 31.98% some time after market trading commenced on July 20th, 2021, bringing the price per share up to USD$6.48 early on in the trading day.
Agreement with LSB Funding
July 20th, 2021 saw the company announce the signing of a definitive agreement with LSB Funding LLC, an affiliate of Eldridge. The agreement will see shares of LSB Series E-1 and Series F-1 being exchanged for shares of LXU common stock. As per the agreement, the closing of the transaction will see LXU exchange roughly USD$300 million worth of preferred stock that is held by Eldridge into the equivalent value of LXU common stock. The exchange has been priced at USD$6.16 per share, which is equal to the 30-day volume-weighted average price as of the date of the agreement. Furthermore, LXU shareholders as of the record date will be granted a special dividend in the form of 0.30 shares of LXU for each share owned.
Advancing the Partnership
The closing of the transaction will result in the elimination of the company’s current financial impact and repayment of accrued compounding preferred stock and future accruing dividends at 14.5%. This number is set to increase to 16% in April 2023, with the move continuing to unburden the company, thereby unlocking shareholder value
LXU’s Expanded Scope
The Special Committee, Board of Directors, and company management are confident that the transaction has the potential to lead to an upgrade in its rating, thereby allowing LXU to refinance its senior secures notes at a lower interest rate and on improved terms. This, in turn, will facilitate a reduction of the cash interest expense and overall cost of capital for the company.
Benefits of the Collaboration
The transaction also serves to improve the company’s financial flexibility, allowing it to allocate resources towards organic growth initiatives, including, but not limited to, growth in green ammonia and clean energy and accretive M&A opportunities. Furthermore, the company will see its substantial tax attributes be preserved, including roughly USD$620 million of federal net operating losses. This facilitates the protection of prospective significant future cash savings and shareholder value.
Future Outlook for LXU
Armed with a highly promising collaboration, the company is poised to capitalize on the massively expanded scope of business it finds at its disposal. Current and potential investors are hopeful that management will be able to leverage their resources to facilitate a continued trajectory of success and growth in equity value.