LXU Stock Increases Over 37% Intraday: Why It Happened

By Amit Chowdhry ● July 20, 2021
  • The stock price of LSB Industries, Inc. (NYSE: LXU) increased by over 37% during intraday trading. This is why it happened.

The stock price of LSB Industries, Inc. (NYSE: LXU) increased by over 37% during intraday trading. Investors are responding positively to LSB Industries led by a Special Committee of the Board of Directors representing the disinterested stockholders of the company (the special committee) announcing that it has signed a definitive agreement (the Exchange Agreement) with LSB Funding LLC (an affiliate of Eldridge) to exchange the shares of LSB Series E-1 and Series F-1 Redeemable Preferred Stock held by Eldridge for shares of LSB common stock. 

Under the terms of the deal, LSB would exchange, at the closing, approximately $300 million of preferred stock held by Eldridge into an equivalent value of LSB common stock based on an exchange price of $6.16 — which is equal to the 30-day volume-weighted average price as of the date of the Exchange Agreement. And in connection with the transaction, existing unaffiliated LSB common stockholders will receive a special dividend in the form of 0.30 shares of LSB common stock for every share owned as of the record date.

Deal Highlights:

— Eliminates the current financial impact and repayment of the accrued compounding preferred stock and future accruing dividends at 14.5% (increasing to 16.0% in April 2023) unburdening LSB Industries and unlocking shareholder value.

— The Special Committee, Board of Directors and LSB management believe this could lead to a rating upgrade potentially allowing LSB Industries to refinance its senior secured notes at a lower interest rate and on improved terms, which would reduce its cash interest expense and overall cost of capital.

— Improves LSB Industries’ financial flexibility allowing it to pursue organic growth initiatives, including in green ammonia and clean energy and accretive M&A opportunities.

— Preserves LSB Industries’ significant tax attributes, including approximately $620 million of federal net operating losses, thereby protecting potentially significant future cash savings and stockholder value.

KEY QUOTES:

“The Special Committee, the Board of Directors and management believe that the exchange of our outstanding Series E-1 and F-1 preferred stock for LSB common stock relieves the Company and our common stockholders from the expensive, compounding burden of the payment-in-kind dividend this preferred stock carries. This measure not only improves our current capital structure but, we believe, combined with the favorable credit markets will allow us to refinance our senior secured notes on more favorable terms than our current senior secured notes and provide us with the financial flexibility needed to grow our business organically and through strategic M&A; while maintaining our significant federal net operating losses which we believe we will start utilizing this year.”

“Over the last several years we have evaluated options to reduce or eliminate our preferred stock. However, during that period, the nitrogen chemical market pricing environment has not been helpful as selling prices had been at multi-year lows. That prevented us from generating sufficient free cash flow to make cash dividend payments on the preferred stock and therefore caused the dividends thereon to accrue at a compounded rate, which significantly increased the preferred stock balance. While the nitrogen chemical market pricing environment has significantly improved and we are seeing selling prices that are now at multi-year highs, we are in a commodity business where pricing can be volatile and change quickly. As a result, we believe that now is an opportune time to take these actions especially given our desire to refinance our senior secured notes and our need for flexibility to take advantage of numerous attractive organic growth opportunities, including the emerging blue/green ammonia and clean energy markets. Additionally, we regularly evaluate M&A prospects that we believe could be accretive to earnings as a result of the increased scale and expanded production capabilities that they would provide us. We believe that the exchange of our outstanding Series E-1 and Series F-1 preferred stock and the overall simplification of our capital structure as well as the potential refinancing of our senior secured notes will be a critical step in unlocking our ability to take advantage of these opportunities.”

— Mark Behrman, LSB’s President and CEO

Disclaimer: This content is intended for informational purposes. Before making any investment, you should do your own analysis.