Square Inc. announced the pricing of $750 million of convertible senior notes due 2023 in a private placement.
The company also granted the initial purchaser of the notes an option to purchase up to an additional $112.5 million of the notes to cover overallotments, if any.
The sale of the notes to the initial purchaser is expected to settle May 25, subject to closing conditions. The offering is expected to result in net proceeds of approximately $736.5 million, after deducting the initial purchaser's discount and estimated offering expenses, assuming the overallotment option is not exercised.
Square expects to use approximately $52.6 million of the net proceeds to pay the cost of certain convertible note hedge transactions, and the remaining proceeds for general corporate purposes.
The notes will be senior, unsecured obligations of Square, and will bear interest at an annual rate of 0.50%, payable semiannually in arrears on May 15 and Nov. 15 of each year, starting Nov. 15. The notes will mature May 15, 2023, unless earlier repurchased or converted.
The initial conversion rate for the notes is 12.8456 shares of Square's class A common stock per $1,000 principal amount of notes, equivalent to an initial conversion price of approximately $77.85 per share. Prior to Feb. 15, 2023, the notes will be convertible only upon the satisfaction of specified conditions and during certain periods. Thereafter, they will be convertible anytime until the close of business on the second scheduled trading day preceding the maturity date. Upon conversion, the notes will be settled in cash, Square's class A common shares, or a combination of cash and shares.
In connection with the pricing of the notes, Square entered into privately negotiated convertible note hedge transactions with the initial purchaser and other financial institutions, known as the hedge counterparties. These transactions are expected generally to reduce the potential dilution to the class A common stock upon any conversion of the notes, and/or offset the cash payments Square is required to make in excess of the principal amount of converted notes, if the market price of the stock is greater than the strike price of the convertible note hedge transactions.
Square also entered into privately negotiated warrant transactions with the hedge counterparties. These transactions could separately have a dilutive effect to the extent the market value per class A common share exceeds the strike price of any warrant transactions, unless Square elects to settle these transactions in cash. The strike price of the warrant transactions will initially be approximately $109.26 per share. If the initial purchaser exercises its overallotment option to purchase additional notes, Square plans to enter into additional convertible note hedge transactions and additional warrant transactions with the hedge counterparties.
