Key Takeaways
- Shares of SoFi Technologies tumbled 13% Tuesday, after it said it was planning to sell up to $862.5 million in convertible bonds.
- The online financial services company will offer $750 million in convertible senior notes due March 2029, and buyers will have an option to purchase $112.5 million more.
- SoFi said it will use part of the proceeds to pay for capped call transactions to limit the dilution to shareholders of the convertible bond offering.
Shares of SoFi Technologies (SOFI) tumbled 13% Tuesday, after the online financial services provider said it was planning to sell up to $862.5 million in convertible bonds.
Convertible bonds are a fixed-income corporate debt security that pay interest but can also be converted into a predetermined number of common stock or equity shares. SoFi’s share price drop reflects the potential dilution to existing shareholders if the bonds are converted into stock, although SoFi said it will use part of the proceeds to pay for capped call transactions to limit that dilution.
Essentially, it means SoFi will be buying a form of call options on its own stock.
“The capped call transactions are expected generally to reduce the potential dilution to SoFi’s common stock upon any conversion of the notes and/or offset any potential cash payments SoFi is required to make in excess of the principal amount of converted notes,” the company said.
SoFi said it would be offering $750 million in convertible senior notes due in March 2029. In addition, initial investors will have the option to purchase another $112.5 million within a period of 13 days from when the notes are first issued.
The rest of the convertible bond’s proceeds, along with cash on hand, will be used to pay fees related to the offering, redeem 12.5% Series 1 preferred shares, and general corporate purposes, including possibly redeeming higher cost debt.
SoFi shares were down 13% at $7.45 as of about 12:00 p.m. ET time Tuesday, and are about 23% lower this year.
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