Twitter has announced they are issuing $1 billion dollars of convertible notes to qualified institutional buyers this week.
Convertible notes is where the investor effectively acts as a banker providing a company a ‘loan’ and receives equity in the company in return.
Buyers of the convertible notes generally will more often than not accrue interest as well.
However, as opposed to being paid back in cash, this interest accrues to the principal invested, increasing the number of shares issued upon conversion.
In Twitters convertible notes, unsecured obligations will bear interest at a rate of 0.25% per year.
Interest will be payable semi-annually in arrears on June 15 and December 15 of each year, beginning on December 15, 2018. The notes will mature on June 15, 2024, unless earlier repurchased or converted.
Twitter expects to use $70.6 million of the net proceeds of the offering of the notes to pay the cost of the convertible note hedge transactions described below (after such cost is partially offset by the proceeds of the warrant transactions described below) to raise the effective conversion price of the notes from Twitter’s perspective, and to use the remaining proceeds of the offering for general corporate purposes.
Twitter will be added to the S&P 500 effective prior to the open of trading on June 7, 2018.
The company has been advised by the initial purchasers that, to facilitate clients’ requests in the ordinary course of business, they and their affiliates engaged today in significant buying and selling activity.
An activity that could also cause or avoid an increase or a decrease in the market price of the common stock and the notes.
So buyer and Twitter be careful, convertible notes do carry such risk.
Twitter has done this before raising $1.8billion in 2014 with the last lot of convertible notes, and it was shaky times for shareholders as Twitter share prices up’d and down’d like a rollercoaster.
With the addition of Twitter advertising, live streaming and seeing a healthy increase in share price.
For convertible note buyers, you are basically betting that the company will still be around and be able to buy back the notes in 2024 when it times for Twitter to honor the debt they owe you
Charis McAwesome, co-founder and manager of hashtagme.co.nz – Charis has worked in digital for over 10yrs specialising in digital management, analytics, digital advertising, social media, digital pathways, and CRM services.
She’s also most likely to call bullshit and get Hashtag in the shit.