Granite Construction Incorporated Prices $325 Million Convertible Senior Notes Offering
Granite Construction announced the pricing of $325 million in 3.25% Convertible Senior Notes due 2030. Initial purchasers have an option to buy an additional $48.75 million. The notes will start accruing interest from December 15, 2024, with semi-annual payments. They can be converted to common stock at a rate of 12.8398 shares per $1,000 principal, equating to a $77.88 per share conversion price, a 30% premium over the June 6, 2024, closing price. The notes mature on June 15, 2030, and can be redeemed by Granite starting June 21, 2027, if specific conditions are met.
Granite plans to use $40 million of the proceeds for capped call transactions and $57.6 million to repurchase 2024 notes. The net proceeds are estimated at $316.6 million, rising to $364.2 million if additional notes are purchased. The remaining funds will be used for loan repayment and general corporate purposes. The capped call transactions aim to reduce dilution and offset cash payments. The offering is through private placement, to qualified institutional buyers under Rule 144A of the Securities Act.
- Granite successfully prices $325 million in Convertible Senior Notes.
- The initial conversion price is set at a 30% premium.
- Net proceeds are estimated at $316.6 million, potentially rising to $364.2 million.
- Proceeds will be used for capped call transactions, repurchasing 2024 notes, and general corporate purposes.
- Capped call transactions aim to minimize dilution and offset cash payments.
- Option for initial purchasers to buy an additional $48.75 million in notes.
- Granite is issuing new debt, which could increase financial liabilities.
- The offering is through a private placement, limiting broader investor participation.
- Convertible notes could lead to dilution if converted into common stock.
- Market activity related to derivative transactions may affect stock prices.
- Granite cannot predict the overall effect on stock and note prices.
Insights
Convertible Senior Notes are a type of debt instrument that can be converted into a pre-determined number of the company's shares. This financing vehicle allows Granite Construction to raise
The interest rate of 3.25% is relatively modest, which indicates that the company is able to secure financing at a reasonable cost, suggesting confidence among investors and favorable terms in the current interest rate environment.
Use of the proceeds includes a capped call transaction, which is a hedging mechanism designed to reduce potential dilution. This transaction caps the stock price exposure at
The repurchase of existing 2.75% convertible senior notes due 2024 indicates prudent financial management, as Granite is restructuring its debt by opting for a slightly higher interest rate but pushing the maturity date further out. This extends the timeline for repayment, allowing more cash flow flexibility.
Rating: 1 (Positive)
The 30% premium on the conversion price of the new notes compared to Granite's current share price indicates strong confidence in the future growth of the company's stock. Investors should view this as a potential upside if the company's performance aligns with expectations, leading to increased stock prices and eventual conversion of notes into shares being attractive.
The potential for market activity due to various hedging transactions and derivatives related to both new and existing convertible instruments could lead to volatility in the short term. For retail investors, it's important to monitor the stock for unusual activity which might influence the stock price. However, this could also provide opportunities for strategic entry or exit points in the market.
Additionally, Granite's intention to use proceeds for general corporate purposes (like acquisitions or share repurchases) suggests a focus on growth and shareholder value, which can be positive signals for long-term investors.
Rating: 1 (Positive)
The Convertible Notes 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
Granite estimates that the net proceeds from the offering will be approximately
In connection with the repurchase transactions described above, Granite expects that holders of the 2024 notes party to such repurchase transactions may enter into or unwind various derivatives with respect to Granite’s common stock (including entering into derivatives with one or more of the initial purchasers in the Convertible Notes offering or their respective affiliates) and/or purchase or sell shares of Granite’s common stock concurrently with or shortly after the pricing of the Convertible Notes offering. This activity could affect the market price of Granite’s common stock and the initial conversion price of the Convertible Notes. Granite cannot predict the magnitude of such market activity or the overall effect it will have on the price of the Convertible Notes or its common stock.
In connection with the pricing of the 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. If the initial purchasers of the Convertible Notes exercise their option to purchase additional Convertible Notes, Granite expects to enter into additional capped call transactions with the option counterparties.
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.
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 unwind 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 portions of the existing convertible note hedge transactions and the 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 will be offered through a private placement. 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 of 1933 (the “Securities Act”), or any 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 offering, the expected closing of the offering, the intended use of proceeds, 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, 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 offering, the expected closing of the offering, the intended use of proceeds, 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, 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 risks related to whether Granite will consummate the offering of the Convertible Notes on the expected terms or at all, the anticipated terms of, and 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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What is the potential impact of capped call transactions on Granite Construction's stock?
