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Square sells $862.5M in convertible senior notes

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Square sells $862.5M in convertible senior notes

Square Inc. said it issued $862.5 million of aggregate principal amount of 0.50% convertible senior notes due 2023.

The company sold in a private placement about $750 million of such notes and the initial purchaser bought an additional $112.5 million of notes to cover overallotments.

Square also entered into an indenture in connection with the issuance of the notes, with The Bank of New York Mellon Trust Co. NA as trustee. Under the indenture, the notes will bear an interest at a rate of 0.50% per year, payable semiannually on May 15 and Nov. 15, beginning Nov. 15. They will mature May 15, 2023, unless earlier repurchased by the company or converted. The company may not redeem the notes prior to the maturity date.

The initial conversion rate of the notes is 12.8456 shares of class A common shares per $1,000 principal amount of notes, equivalent to an initial conversion price of around $77.85 per share. The conversion rate will be subject to adjustment upon the occurrence of certain specified events but will not be adjusted for accrued and unpaid interest. Upon conversion, the notes will be settled in cash, class A common shares or a combination.

In connection with the pricing of notes and the exercise of the overallotment option, Square entered into privately negotiated convertible hedge fund transactions with respect to its class A common shares with counterparties, namely Barclays Bank PLC, Citibank NA, Goldman Sachs & Co. LLC and Royal Bank of Canada. The transactions cover about 11.1 million class A common shares, at a strike price that initially corresponds to the initial conversion price of the notes and are exercisable upon conversion of the notes. The company paid the counterparties about $172.6 million. The transactions will expire upon the maturity of the notes.

Additionally, Square entered into privately negotiated warrant transactions, where it sold to the counterparties warrants to acquire, collectively, about 11.1 million class A common shares at an initial strike price of about $109.26 per share. The warrants were sold in private placements. The company received aggregate proceeds of roughly $112.1 million from the sale.

The convertible note hedge transactions and warrants are separate transactions and are not part of the terms of the notes. Holders of the notes will not have any rights with respect to the transactions.