Sable Offshore Corp. (NYSE:SOC) saw its stock decline sharply on Tuesday, dropping 23% after the company announced planned capital raises consisting of a common stock offering and convertible senior notes.
The proposed equity sale totals $100.0 million of common stock, while the notes offering amounts to $300.0 million of convertible senior notes with a maturity date of July 1, 2031. Sable has also granted underwriters a 30-day option to buy additional securities to cover over-allotments - up to $15.0 million of common stock and $45.0 million of the notes.
J.P. Morgan is acting as the sole book-running manager for both the common stock and the notes offerings. U.S. Bank Trust Company, N.A. is expected to serve as trustee under the notes.
The convertible senior notes will be unsecured senior obligations of Sable and will accrue interest that is payable semi-annually in arrears. Noteholders will have the right to convert their notes under specified circumstances and during defined conversion periods. When conversions occur, Sable may settle them in cash, in shares of common stock, or by using a combination of both methods, at the company’s discretion.
Sable will have the option to redeem the notes for cash beginning on July 6, 2029, but only if the last reported sale price per share exceeds 175% of the conversion price for a specified period and subject to other conditions outlined by the company. Noteholders also will have the right to require Sable to repurchase their notes for cash if certain corporate events that constitute a "fundamental change" occur, or on July 6, 2029.
Management stated that net proceeds from the proposed stock and notes offerings, together with proceeds from a previously announced New Senior Secured Term Loan, are intended to be used to repay Sable’s Senior Secured Term Loan with Exxon Mobil Corporation, cover transaction fees and expenses, and for general corporate purposes.
Importantly, the New Senior Secured Term Loan, the common stock offering, and the notes offering are cross-conditioned. Each transaction will be completed only if all are consummated, meaning the failure of one piece could prevent the others from closing.
The market reaction was immediate: shares fell 23% on the day of the announcement. Investors will be watching the execution of the linked financing steps as the company progresses through the underwriting and closing processes.