A123 Systems Announces Private Offering of $50 Million of Convertible Notes and Warrants ($AONE)

From the press release today:

"AONE announced a private offering of $50 million aggregate principal amount of its Senior Unsecured Convertible Notes and Warrants... The Notes will bear interest at a rate of 6.00% per year, subject to certain adjustments, and mature in July, 2013. The Notes will be convertible, at the holder's option, into shares of the Company's common stock initially at a fixed conversion price, subject to certain adjustments. The Company will be required to redeem 1/28th of the principal amount of Notes, subject to certain adjustments, semi-monthly. Interest and amortization payments may be settled in common stock of the Company, subject to certain conditions. Holders of the Notes will also have certain number of optional voluntary conversion rights. Holders of the Notes will have the right to require the Company to redeem up to $25 million aggregate principal amount of the Notes if the Company does not obtain stockholder approval to issue an additional number of shares of the Company's common stock in connection with conversion of the Notes and interest and amortization payments settled in common stock of the Company by June 30, 2012. In conjunction with the Convertible Offering, the Company shall issue warrants equal to 30% of the number of shares of Common Stock the Investor would receive if the Notes were converted in full at the initial Conversion Price. The Warrants expire in May 2017. The offering is expected to close on or about May 18, 2012, subject to the satisfaction of customary closing conditions."

So, we can't tell exactly what the effect of this will be, because they did not announce what the conversion price will be, or how it will be adjusted. My guess is that it will be very dilutive. If I were buying these new notes, I would want the conversion price to ratchet downward as the stock price fell. I'm surprised that the equity did not react more strongly today.