Granite Construction Incorporated Announces Closing of $325 Million of Convertible Senior Notes due 2030 and Full Exercise of Initial Purchasers’ Option to Purchase Additional $48.75 Million of the Convertible Senior Notes
Granite Construction announced the closing of its $373.75 million Convertible Senior Notes offering, including the full exercise of the initial purchasers' option for an additional $48.75 million. The Convertible Notes, bearing 3.25% interest and maturing in 2030, were sold privately under Rule 144A. Net proceeds are estimated at $364.2 million, after expenses. Granite used $46 million for capped call transactions and $57.6 million to repurchase 2024 notes. Remaining funds will repay term loans and support general corporate purposes. The Convertible Notes have a conversion rate of 12.8398 shares per $1,000 principal and a conversion price of $77.88 per share, a 30% premium over the June 6, 2024, stock price. Granite may redeem the Notes post-2027 under specific conditions and has agreements to mitigate potential stock dilution.
- Granite raised $373.75 million through Convertible Senior Notes, including options exercised worth $48.75 million.
- The net proceeds estimated at $364.2 million will support future company growth and repaying debts.
- Granite executed $46 million capped call transactions to reduce stock dilution upon note conversion.
- The company repurchased $30.2 million of its 2024 notes, improving its debt profile.
- Remaining net proceeds will be used for general corporate purposes, potentially including acquisitions or share repurchases.
- Convertible Notes have an initial conversion price of $77.88 per share, a 30% premium over the current stock price, indicating strong market confidence.
- The issuance of new Convertible Notes increases Granite's debt by $373.75 million.
- $57.6 million used to repurchase 2024 notes could have been allocated to other growth initiatives.
- Convertible Notes bear a 3.25% interest rate, adding to Granite's interest expenses.
- Potential dilution risk remains if stock price exceeds the capped call transaction price of $119.82 per share.
- Granite cannot redeem the Convertible Notes before June 21, 2027, limiting financial flexibility.
- Any market activity by option counterparties may cause significant stock price volatility.
Insights
The issuance of $373.75 million in Convertible Senior Notes due 2030 by Granite Construction Incorporated provides several key takeaways for investors. Firstly, the use of proceeds offers some insight into the company's financial strategy.
The company's deployment of
From a valuation perspective, the initial conversion rate of 12.8398 shares per $1,000 principal amount, or an approximate conversion price of
The legal implications of this transaction are notable primarily because the Convertible Notes were sold in a private offering to qualified institutional buyers under Rule 144A of the Securities Act of 1933. This regulatory pathway allows the company to bypass the usual registration requirements, speeding up the fundraising process. For investors, this means these notes are not available for purchase by the general public and are subject to resale restrictions.
Additionally, the structure of the capped call transactions and various derivative actions tied to these notes provides a hedge against conversion-related dilution but introduces complexities that investors should be aware of. For instance, adjustments to cap prices and the intricate nature of these financial instruments may create some unpredictable market behaviors.
Finally, the terms permitting early redemption starting in 2027, only if the stock price hits
From a market standpoint, this transaction shows Granite's careful balancing between leveraging debt for growth and managing equity dilution. The substantial premium on the conversion price indicates market confidence and could reflect positive sentiment around the company's future prospects. However, the market reaction will need to be monitored, particularly any derivative transactions by the counterparties, which can create volatility.
The capped call transactions, which are designed to mitigate dilution, highlight a common practice among firms issuing convertible notes. This protective measure demonstrates a commitment to shareholder value, potentially stabilizing stock prices in the short term while providing long-term growth options.
However, the anticipated market activities related to the counterparties' hedging strategies might temporarily impact the stock's price movements. For retail investors, understanding these dynamics is crucial. The issuance reflects a positive outlook but requires cautious attention to market fluctuations driven by institutional activities.
Granite estimates that the net proceeds from the offering were approximately
The Convertible Notes are general unsecured senior obligations of Granite and will bear interest at a rate of
Granite will not be permitted to redeem the Convertible Notes prior to June 21, 2027. On or after June 21, 2027, Granite may redeem for cash all or any portion of the Convertible Notes, at its option, if the last reported sale price of Granite’s common stock has been at least
In connection with the pricing of the Convertible Notes and the exercise of the initial purchasers’ option to purchase additional Convertible Notes, Granite entered into privately negotiated capped call transactions with certain of the initial purchasers of the Convertible Notes or their respective affiliates and certain other financial institutions (the “option counterparties”). The capped call transactions will cover, subject to anti-dilution adjustments substantially similar to those applicable to the Convertible Notes, the number of shares of Granite’s common stock initially underlying the Convertible Notes.
The cap price of the capped call transactions will initially be
The capped call transactions are expected generally to reduce the potential dilution to Granite’s common stock upon any conversion of the Convertible Notes and/or offset any cash payments Granite is required to make in excess of the principal amount of converted Convertible Notes, as the case may be. If, however, the market price per share of Granite’s common stock, as measured under the terms of the capped call transactions, exceeds the cap price of the capped call transactions, there would nevertheless be dilution and/or there would not be an offset of such cash payments, in each case, to the extent that such market price exceeds the cap price of the capped call transactions.
Granite has been advised that, in connection with establishing their initial hedges of the capped call transactions, the option counterparties or their respective affiliates expect to enter into various derivative transactions with respect to Granite’s common stock and/or purchase shares of Granite’s common stock concurrently with or shortly after the pricing of the Convertible Notes. This activity could increase (or reduce the size of any decrease in) the market price of Granite’s common stock or the Convertible Notes at that time.
In addition, the option counterparties or their respective affiliates may modify their hedge positions by entering into or unwinding various derivatives with respect to Granite’s common stock and/or purchasing or selling shares of Granite’s common stock or other securities of Granite in secondary market transactions following the pricing of the Convertible Notes and prior to the maturity of the Convertible Notes (and are likely to do so during any observation period related to a conversion of the Convertible Notes, following any repurchase of the Convertible Notes in connection with any fundamental change or redemption of the Convertible Notes at Granite’s option or, to the extent Granite unwinds a corresponding portion of the capped call transactions, in connection with any other repurchase of the Convertible Notes). This activity could also cause or hinder an increase or decrease in the market price of Granite’s common stock or the Convertible Notes, which could affect the holders’ ability to convert the Convertible Notes and, to the extent the activity occurs during any observation period related to a conversion of the Convertible Notes, it could affect the amount of cash and the number and value of shares of Granite’s common stock, if any, that holders will receive upon conversion of the Convertible Notes.
Granite used approximately
In connection with the issuance of the 2024 notes, Granite entered into convertible note hedge transactions (the “existing convertible note hedge transactions”) with certain financial institutions (the “existing counterparties”), and Granite also entered into separate warrant transactions (the “existing warrant transactions”) with the existing counterparties. In connection with the 2024 notes repurchases, Granite entered into partial unwind agreements (the “Unwind Agreements”) with the existing counterparties, concurrently with the offering, to terminate a corresponding portion of the existing convertible note hedge transactions and the existing warrant transactions (collectively, the “Unwind Transactions”). In connection with the Unwind Transactions and pursuant to the Unwind Agreements, Granite will receive approximately 261,000 shares of Granite’s common stock in respect of the unwind of the portion of the existing convertible note hedge transactions and existing warrant transactions that correspond to the 2024 notes repurchases.
In connection with the Unwind Transactions, the existing counterparties and/or their respective affiliates may enter into or unwind various derivative transactions with respect to Granite’s common stock and/or purchase or sell shares of Granite’s common stock or other securities of Granite in secondary market transactions concurrently with or shortly after the pricing of the Convertible Notes. This activity may affect the price of Granite’s common stock and, in turn, impact the initial conversion price of the Convertible Notes.
The Convertible Notes and the shares of Granite’s common stock issuable upon conversion of the Convertible Notes, if any, have not been and will not be registered under the Securities Act or applicable state securities laws. As a result, neither the Convertible Notes nor any common stock issuable upon conversion of the Convertible Notes may be offered or sold in
Forward-looking Statements
Any statements contained in this news release that are not based on historical facts, including statements about the use of proceeds, Granite’s receipt of Granite’s common stock, third parties entering into or unwinding derivative transactions with respect to Granite’s common stock and/or purchasing or selling Granite’s common stock, and the potential impact of the capped call transactions, the 2024 notes repurchases, the Unwind Transactions and third parties entering into or unwinding derivative transactions with respect to Granite’s common stock and/or purchasing or selling Granite’s common stock on dilution to Granite’s stockholders or the offset of any cash payments Granite is required to make in excess of the principal amount of converted Convertible Notes, or the market price of Granite’s common stock or the Convertible Notes or the initial conversion price of the Convertible Notes constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are identified by words such as “expects,” “estimates,” “intends,” “plans,” “potential,” “may,” “will,” “could,” “would” and the negatives thereof or other comparable terminology or by the context in which they are made. These forward-looking statements are predictions reflecting the best judgment of senior management and reflect our current expectations regarding the use of proceeds, Granite’s receipt of Granite’s common stock, third parties entering into or unwinding derivative transactions with respect to Granite’s common stock and/or purchasing or selling Granite’s common stock, and the potential impact of the capped call transactions, the 2024 notes repurchases, the Unwind Transactions and third parties entering into or unwinding derivative transactions with respect to Granite’s common stock and/or purchasing or selling Granite’s common stock on dilution to Granite’s stockholders or the offset of any cash payments Granite is required to make in excess of the principal amount of converted Convertible Notes, or the market price of Granite’s common stock or the Convertible Notes or the initial conversion price of the Convertible Notes. These expectations may or may not be realized. Some of these expectations may be based on beliefs, assumptions or predictions that may prove to be incorrect. In addition, our business and operations involve numerous risks and uncertainties, many of which are beyond our control, which could result in our expectations not being realized or otherwise materially affect our business, financial condition, results of operations, cash flows and liquidity. Such risks and uncertainties include, but are not limited to, the effects of entering into the capped call transactions, the 2024 notes repurchases, the Unwind Transactions and third parties entering into or unwinding derivative transactions with respect to Granite’s common stock and/or purchasing or selling Granite’s common stock, market and general conditions, and those described in greater detail in our filings with the Securities and Exchange Commission, particularly those described in our Annual Report on Form 10-K and Quarterly Reports on Form 10-Q.
Due to the inherent risks and uncertainties associated with our forward-looking statements, the reader is cautioned not to place undue reliance on them. The reader is also cautioned that the forward-looking statements contained herein speak only as of the date of this news release and, except as required by law; we undertake no obligation to revise or update any forward-looking statements for any reason.
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Source: Granite Construction Incorporated
FAQ
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