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Barely two weeks ago, when Large Cap Watch List member NII Holdings (NASDAQ:NIHD) announced they were offering a premium to entice bondholders to convert their notes into shares, I said they were paying dearly for what had originally looked like cheap financing. At the time, I provided the following analysis:

So now, three years later the company decides to close out the financing deal, and are willing to pay $80 per note as an inducement to convert the bond into shares early. To do so they will pay $28.2 million in cash for the interest and conversion premium, and issue stock worth $912.3 million - total consideration of $940.5 million for $300 million worth of notes when issued.

So how did the bondholders do on the “2 7/8%” notes? How does an annual return of more than 49% sound? And in hindsight, the convertible note offering looks too clever for its own good.

Well, it just got even more expensive:

NII Holdings, Inc. announced that it has increased the cash premium for its tender offer (the “Offer”), commenced on June 22, 2007, with respect to its 2 7/8% Convertible Notes due 2034 (the “Notes”) from $80.00 for each $1,000 principal amount of Notes to $85.00 for each $1,000 principal amount of Notes (the “Inducement Premium”) validly tendered and accepted for conversion into shares of the Company’s common stock pursuant to the terms of the Offer and the Notes.

Updating the analysis, they are now offering total compensation worth $989 million for the original $300 million worth of notes, and the lucky bondholders would earn an annualized return of more than 52%.

NIHD 1-yr chart:

NIHD 1-yr chart

Source: NII Holdings' Cheap Financing Keeps Getting More Expensive