Replies to post #310650 on Zeev's Turnips Patch-No Politics (ZEEV)

[Zeev Hed]

I don't think SNDK be hit for this conversion. Most people think that premature debt call in is positive and indicates financial strength of the company. If SNDK be sold, it would be residual scorn for their failure to let an inkling out that the quarter would be so poor and under expectations.

[langostino]

peace - that conversion

is a good thing. Think of it like this ... you've got 10k in a savings account drawing 1% interest. And you've got 2k on your credit card, and you're paying 9.9% interest on it. Is it a good idea to pay off the credit card bill? Of course! It's saving you 8.9% a year on 2k.

This isn't a question of whether a company's earnings power would be enhanced or reduced by leverage of debt, it's a pure offset. If you're carrying debt with carrying cost higher than cash interest, there is simply no rational justification for not paying it off, at least to the point where you reach a cash level that matches upcoming capital requirements and operational cash flow. Debt can be good if it provides leverage. But there is no leverage created when there is debt and corresponding cash on the books. It's just a pure drain.

So the conversion is a pure net positive. No ambiguity about it. And, if for any reason they have any kind of need for cash beyond the huge slug they'll still have on the books, they'll be able to re-float debt at a lower rate than this debt being retired anyway.

Also, don't forget, with Sandisk being strongly cash flow positive, they are constantly stacking up new cash. With interest rates so low, that cash is a major drag on growth rates in ROA, ROE and ROIC.

Bottom line: they're doing the right thing.