In order to increase capital and enhance its liquidity, on Feb 16, 2010, Portfolio Recovery Associates, Inc. (PRAA) announced the beginning of the public offering of its 1,000,000 shares that have been underwritten on its common stock. For this, the company has appointed William Blair & Company, LLC as the book-running manager and JMP Securities LLC as the co-lead manager.
Additionally, PRAA has also granted a 30-day option to its underwriters for the purchase of an additional 150,000 shares to cover any over-allotments. PRAA expects to pay back a part of its $365 million revolving credit facility from the proceeds of the stock offering.
According to the PRAA management, the repayment of debt will provide scope for downsizing the revolving credit facility where interest is charged on the unused portion of funds. Concurrently, now the company plans to increase its borrowing from the line of credit where interest is charged only on the amount of funds used by the company. This will help in reducing the interest costs of the company, while also making sufficient funds available for the purpose of acquisitions and for general corporate operations of the company.
Concurrently, on Feb 16, 2010, PartnerRe Ltd. (PRE) announced the buyback of its 1.4 million common shares at a price of $75.14 per share, for a total amount of $108.1 million. These shares were repurchased from Paris Re, which was formerly issued by PartnerRe on fully acquiring Paris Re in Jul, 2009.
The share repurchase is part of the 5 million share buyback program that was approved and authorized by the board of PartnerRe in Sep, 2008. The current quantity of shares repurchased account for 1.7% of the total shares outstanding of PartnerRe.
Given the current volatility in the markets and the sluggish recovery that has been affecting the operating results, we believe that increasing capital through share issue can provide liquidity and stability to the balance sheet of PRAA, although dilution of shares weighs on the earnings per share.
On the other hand, buying back shares will help PartnerRe in fewer share count, thereby increasing earnings per share and return of equity and excess cash of the company. However, while this method helps in raising investors’ confidence, it only tends to virtually elevate the market value of the stock.
Read the full analyst report on “PRAA”
Read the full analyst report on “PRE”
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