Shares of Bandwidth Inc. (NASDAQ:BAND) fell 12.7% on Monday after the cloud communications company revealed plans to sell $275 million in convertible senior notes that will mature in 2032.
The company said the offering will be conducted as a private placement to qualified institutional buyers under Rule 144A of the Securities Act of 1933. Bandwidth also indicated that the initial purchasers will be given a 13-day option to buy up to an additional $41.25 million of notes to cover potential over-allotments.
The securities, as described by the company, will be senior, unsecured obligations with interest payable on a semi-annual basis. Bandwidth said each note will be convertible - at the company's election - into cash, shares of its Class A common stock, or a combination of cash and stock. The interest rate, the initial conversion rate and other specific terms of the notes will be set at the time the offering is priced.
Bandwidth outlined how it expects to allocate the net proceeds. A portion will be used to pay for capped call transactions intended to mitigate dilution tied to conversions of the notes. The company also expects to use up to $10 million of the proceeds to repurchase shares of its Class A common stock in privately negotiated transactions that would take place concurrently with pricing.
In addition to share repurchases, Bandwidth said a portion of the proceeds will be used to repurchase a portion of its outstanding 0.50% convertible senior notes due 2028, again through privately negotiated transactions. The remainder of the net proceeds will be applied to repay outstanding amounts under its credit facility and for working capital and other general corporate purposes.
As part of the financing, Bandwidth expects to enter into privately negotiated capped call transactions with certain initial purchasers or their affiliates at the time the notes are priced. The company said these capped calls are expected to reduce potential dilution to its Class A common stock that could result from any conversion of the notes.
Bandwidth emphasized that the notes will be offered only to qualified institutional buyers and that the offering has not been registered under the Securities Act.
Market reaction and financing mechanics
- The stock's decline followed the announcement of the planned convertible offering and related repurchase and capped call plans.
- Key financing details - including interest rate and conversion terms - will be finalized at pricing.
- The offering includes an over-allotment option for initial purchasers to buy additional notes.