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Walter's stock rise good for its bonds

Published Aug. 24, 2005

Shareholders of Walter Industries hit the jackpot last year as its stock price soared 153 percent.

Now some of Walter's bondholders are getting in on the fun.

Investors bought $175-million worth of 20-year notes from the Tampa company in April, when its stock was trading in the $12 to $13 range.

The convertible senior subordinated notes will pay an annual interest rate of 3.75 percent and mature in 2024. Walter used most of the proceeds to pay off expensive bank loans.

But the leap in Walter's stock price has triggered a conversion clause that will let bondholders exchange their notes for common stock if they wish. Under the terms of the agreement, bondholders would receive one share of stock for every $17.85 they invested; Walter's stock closed Tuesday at $30.89, down $2.11 per share.

Despite the temptation to make a quick profit, many bondholders are expected to take a pass on conversion. For one thing, Walter's stock price could climb further, making conversion more valuable in the future.

Besides, said Robert Norfleet III, a first vice president at Davenport & Co. of Richmond, Va., the bonds are trading at a premium to their face value, making them valuable in their own right.

Joe Troy, Walter's senior vice president for financial services, declined to guess how many bondholders will respond to the conversion opportunity, which ends March 31. If every noteholder opted to convert, Walter would have to come up with 9.8-million shares of stock, or some combination of stock and cash.

No matter how many investors convert, Troy said, the company will have no problem redeeming the notes. "We've got plenty of liquidity," he said.

Scott Barancik can be reached at or (727) 893-8751.