The stop hit on PNSN and the position is no longer being held. However, we recognize that some subscribers are still holding PNSN.
We asked PNSN a number of questions and also requested them to verify the authenticity of the following letter:
March 28, 2012Dear Valued Correspondent
As you have no doubt noticed, the price of our common shares has declined over the last week.
We believe this is due to the potential share dilution that is part of Penson Worldwide, Inc.’s
recently announced debt exchange offer plan, and is a sign of confidence in the ultimate
success of that plan. There has been no other material news issued that we are aware of
affecting the price of the common shares.
Our plan calls for exchanging nearly two thirds of our long-term funded corporate debt for new
preferred and common stock under terms that would eliminate any current cash interest
payments. While we are current with all our debt and interest payments and in compliance
with our bank covenants, we believe the exchange offer is the best way of increasing our cash
flow for the purpose of continuing our quality service to you, our correspondent.
I would like to emphasize that the proposed exchange offer only affects Penson Worldwide, Inc.
and does not adversely impact the capital or balance sheet of Pen son Financial Services, Inc.
(PFSI), our subsidiary servicing your business.
PFSI is in st rong financial position with ample liquidity and borrowing capacity. As of the last
reporting period, it continued to have more than five times the minimum requirement of
regulatory capital, which is still the case. In addition, virtually all your customers’ excess cash is
in FDIC ensured bank accounts.
We will keep you posted on all major events related to the debt exchange. If you have any
further questions, please don’t hesitate to call your relation ship manager.
Thank you for your business.
Philip A. Pendergraft
Chief Executive Officer
Penson Worldwide, Inc.
Here is their response:
Nigam,
Sorry for the delay getting back to you.
To answer your questions…
1. Exact details of the dilution: All shareholders outstanding, excluding Broadridge, will hold approximately 38.5% of Penson’s outstanding common stock post the exchange. Penson currently has about 27.7 million shares outstanding of which Broadridge owns 2.45 million shares. (27.7 – 2.45)/.385 = 65.6.
2. Book value after dilution? Under the plan, we would eliminate approximately $176 million of debt and $30 million of annual cash interest expense, increase equity at our parent company, and potentially realize a significant one-time gain as a result of this exchange. So book value in total should increase, but I don’t have the mechanics of the accounting yet to tell you how it will all settle out.
3. Is the letter below genuine? It looks like somebody copied an email sent by Penson to its correspondents.
4. For more information, go to the company’s IR website and listen to a replay of the recent 4Q11 concall and read through the presentation that accompanies it.
Call me if you have any additional questions.
Thank you.
Gary
