Price Co. Seeks to Sell Bonds for Expansion
Price Co., the San Diego-based operator of the Price Club discount warehouse chain, has filed for permission from the U.S. Securities and Exchange Commission to sell $250 million worth of convertible bonds.
Price said it will use the proceeds of the convertible subordinated debenture offering to finance expansion, including the planned openings of eight new Price Clubs in the United States and two in Canada in 1991. The company operates 56 outlets in the United States and 10 in Canada.
The company said it will not know the conversion rate of the bonds or the interest to be paid to investors until sometime next week. Besides paying interest to investors, the bonds would be convertible to stock if Price Co. shares reach a certain minimum conversion level. Price stock closed down $2.125, at $43.625 per share, in over-the-counter trading Thursday.
Lehman Brothers and Merrill Lynch will underwrite the proposed offering of the bonds, due in the year 2016.
As with many other companies that have announced bond offerings in recent weeks, Price Co. is seeking to take advantage of the recent drop in interest rates to raise money at favorable rates, said Irving Katz, a San Diego securities analyst.
Price and others are also taking advantage of rising stock and bond prices, said Lew Stern of the M. L. Stern investment brokerage in San Diego.
The new bond offering would be Price’s largest ever. In February, 1987, the company sold $200 million worth of 5.5% bonds due in 2012 and convertible at $50.625 per share. Then as now, the offering was completed at a time of declining interest rates.
But the bonds issued in 1987 have not come close to the $50.625-per-share conversion price. Until recent weeks, when the company’s stock was swept upward by the bull stock market, Price Co. shares mostly have trended down since the 1987 offering.
For the first quarter that ended Dec. 23, Price reported net income of $47 million on sales of $2.16 billion, up from $44.3 million on sales of $1.82 billion for the corresponding period last year.
