Heritage Insurance Holdings Inc. priced a private offering of $125 million aggregate principal amount of 5.875% convertible senior notes due 2037.
The company granted the initial purchaser for the offering a 30-day option to buy up to about $18.8 million aggregate principal amount of additional notes.
The notes will be senior unsecured obligations of the company and will be guaranteed on a senior unsecured basis by the company's unit, Heritage MGA LLC. Interest will be payable semiannually in arrears Feb. 1 and Aug. 1 of each year, starting Feb. 1, 2018, at 5.875% per year. The notes will mature Aug. 1, 2037, unless earlier repurchased, redeemed or converted.
The initial conversion rate will be 67.0264 Heritage Insurance common shares per $1,000 principal amount of notes, or equivalent to an initial conversion price of approximately $14.92 per share. The initial conversion price represents a premium of approximately 32.5% to the $11.26 per share closing price of the company's common shares Aug. 10.
Initially, the notes will be convertible solely into cash unless and until the company obtains the required shareholder approval under applicable New York Stock Exchange rules. Following the receipt of the shareholder approval, the notes will be convertible, into cash, common shares or a combination of cash and common shares, at the company's election. The company will have the option to redeem all or any portion of the notes on or after Aug. 5, 2022, at a redemption price equal to 100% of their principal amount, plus accrued and unpaid interest to, but excluding, the redemption date.
If Heritage Insurance's acquisition of NBIC Holdings Inc. is not consummated before June 8, 2018, or if the related acquisition agreement is terminated, Heritage Insurance may redeem all, but not less than all, of the notes at a redemption price equal to 101% of their principal amount, plus accrued and unpaid interest to, but excluding, the redemption date, plus 75% of the excess, if any, of the notes' conversion value at the time of redemption over their initial conversion value. Holders of the notes will be able to cause the company to repurchase their notes for cash on any of Aug. 1, 2022, Aug. 1, 2027, and Aug. 1, 2032, and on the occurrence of certain fundamental changes, in each case at 100% of their principal amount, plus accrued and unpaid interest.
Heritage Insurance expects the net proceeds from the sale of the notes to be approximately $120.5 million, or approximately $138.6 million if the initial purchaser exercises its option to purchase additional notes in full, after deducting the initial purchaser's discount and offering expenses.
The company expects to use the net proceeds to repurchase approximately $40.0 million of its common shares in privately negotiated transactions effected with or through the initial purchaser or its affiliate and fund the cash portion of the NBIC deal. Pending the allocation of the net proceeds to finance the cash portion of the consideration for the NBIC deal, the net proceeds may be invested in overnight or other short-term financial instruments.
The offering is not conditioned upon the completion of the NBIC deal, which, if completed, will occur subsequent to the closing of the offering. In the event that Heritage Insurance does not consummate the NBIC deal, the remaining balance of the net proceeds from the offering will be used to fund the redemption of the notes or for general corporate purposes.
Heritage Insurance repurchased approximately 3.6 million shares indirectly from purchasers of the notes in the offering at a purchase price per share equal to the closing price per Heritage Insurance common share Aug. 10, which was $11.26.