Microchip Technology Announces Pricing of Offering of $1.1 Billion of Convertible Senior Notes
Microchip Technology (NASDAQ: MCHP) has announced the pricing of $1.1 billion of Convertible Senior Notes due 2030. The notes will bear a 0.75% annual interest rate, payable semi-annually. Microchip expects $1.09 billion in net proceeds, with an additional option for initial purchasers to procure $150 million more within 13 days. The proceeds will be used for capped call transactions and debt repayment. The initial conversion rate is set at 8.2076 shares per $1,000 note, with a capped call transaction price at $167.23 per share. These transactions aim to mitigate potential stock dilution. The notes are redeemable from June 5, 2027, under specific conditions.
- Microchip will raise $1.1 billion with a potential extension of $150 million.
- Net proceeds expected to be $1.09 billion after deductions.
- Convertible notes have a low annual interest rate of 0.75%.
- Proceeds will repay existing debt and reduce financial liabilities.
- Capped call transactions are expected to reduce stock dilution.
- High conversion premium of 27.5%, indicating market confidence.
- Capped call transaction price set at $167.23, a 75% premium over the last reported stock price.
- Redeemable notes from June 5, 2027, offering flexibility.
- Convertible notes are senior, unsecured obligations, increasing financial risk.
- Potential dilution of shares if notes are converted.
- Convertible notes can cause market volatility due to hedge activities by financial institutions.
- Interest payments may add to financial burden semi-annually.
Insights
Microchip Technology's announcement of a
The interest rate of
Additionally, the capped call transactions designed to mitigate dilution are a common feature in convertible note offerings, providing confidence to existing shareholders about the company's commitment to maintaining shareholder value. The cap price is set at
Overall, this offering can be seen as a positive move, providing capital for debt repayment and reducing interest expenses, which could improve the company's balance sheet and financial flexibility.
From a market perspective, the timing and structure of this convertible note offering by Microchip Technology provide insights into the company's strategic positioning. By setting a conversion premium of
However, investors should be aware of the potential market impacts. The hedging activities by option counterparties, including buying and selling stocks and derivatives, could introduce volatility in Microchip's stock price. This is especially relevant during observation periods related to note conversions, which could impact the stock’s short-term movement.
The planned use of proceeds to repay existing debt can be seen as a conservative and prudent approach, which might positively affect Microchip's credit ratings and lower interest expenses. Such moves might create a more robust financial foundation, positioning the company well for future growth and operational stability.
The issuance of these Convertible Senior Notes under Rule 144A suggests a targeted approach, aiming at qualified institutional buyers (QIBs). This rule provides a safe harbor from the registration requirements, enabling Microchip to raise capital more quickly and efficiently from sophisticated investors who are less in need of the protections afforded by registration.
Furthermore, the terms surrounding redemption, conversion and repurchase provisions are critical. The company has the right to redeem the notes under certain conditions, which could provide flexibility in managing its debt load. Conversely, noteholders have protective rights, such as forcing Microchip to repurchase the notes upon a fundamental change like a merger or acquisition. This balance of rights and obligations underscores a well-structured financial instrument designed to attract institutional investment while protecting both parties' interests.
CHANDLER, Ariz., May 29, 2024 (GLOBE NEWSWIRE) -- (NASDAQ: MCHP) – Microchip Technology Incorporated, a leading provider of smart, connected, and secure embedded control solutions, today announced the pricing of
The notes will be senior, unsecured obligations of Microchip. The notes will bear interest at a rate of
Holders may require Microchip to repurchase the notes for cash on June 1, 2027 at a purchase price equal to the principal amount thereof plus accrued and unpaid interest. In addition, holders of the notes will have the right to require Microchip to repurchase all or a portion of their notes upon the occurrence of a fundamental change (as defined in the indenture governing the notes) at a purchase price of
The notes will be convertible at an initial conversion rate of 8.2076 shares of common stock per
Prior to the close of business on the business day immediately preceding March 1, 2030, the notes will be convertible at the option of the noteholders only upon the satisfaction of specified conditions and during certain periods. On or after March 1, 2030 until the close of business on the second scheduled trading day preceding the maturity date, the notes will be convertible at the option of the noteholders at any time regardless of these conditions. Upon conversion, Microchip will pay cash up to the aggregate principal amount of the notes to be converted and pay or deliver, as the case may be, cash, shares of common stock or a combination of cash and shares of common stock, at Microchip’s election, in respect of the remainder, if any, of its conversion obligation in excess of the aggregate principal amount of the notes being converted.
In connection with the pricing of the notes, Microchip entered into privately negotiated capped call transactions with certain financial institutions (the “option counterparties”). The capped call transactions will cover, subject to anti-dilution adjustments, the number of shares of common stock underlying the notes sold in the offering. The capped call transactions are generally expected to reduce potential dilution to the common stock upon any conversion of notes and/or offset any cash payments Microchip is required make in excess of the principal amount of converted notes, as the case may be, with such reduction and/or offset subject to a cap. The cap price of the capped call transactions will initially be
Microchip 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 purchase shares of common stock and/or enter into various derivative transactions with respect to the common stock concurrently with or shortly after the pricing of the notes. This activity could increase (or reduce the size of any decrease in) the market price of the common stock or the 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 the common stock and/or purchasing or selling the common stock or other securities of Microchip in secondary market transactions from time to time prior to the maturity of the notes (and are likely to do so during any observation period related to a conversion of the notes and, to the extent Microchip unwinds a corresponding portion of the capped call transactions, following any repurchase or redemption of the notes). This activity could also cause or avoid an increase or a decrease in the market price of the common stock or the notes, which could affect the ability of noteholders to convert the notes and, to the extent the activity occurs during any observation period related to a conversion of notes, it could affect the number of shares and value of the consideration that noteholders will receive upon conversion of the notes.
Microchip intends to use
The notes were and will only be offered to persons reasonably believed to be qualified institutional buyers pursuant to Rule 144A under the Securities Act. Neither the notes nor the shares of common stock potentially issuable upon conversion of the notes, if any, have been, or will be, registered under the Securities Act or the securities laws of any other jurisdiction, and unless so registered, may not be offered or sold in the United States except pursuant to an applicable exemption from such registration requirements.
This announcement is neither an offer to sell nor a solicitation of an offer to buy any of these securities and shall not constitute an offer, solicitation or sale in any jurisdiction in which such offer, solicitation or sale is unlawful.
The Microchip logo and name are registered trademarks of Microchip Technology Incorporated.
INVESTOR RELATIONS CONTACT:
Eric Bjornholt – CFO ... (480) 792-7804
Sajid Daudi – Head of Investor Relations ... (480) 792-7385
FAQ
What is the total amount Microchip Technology is raising through the Convertible Senior Notes offering?
What is the interest rate on Microchip's Convertible Senior Notes due 2030?
When will Microchip Technology's Convertible Senior Notes mature?
What is the initial conversion rate for Microchip's Convertible Senior Notes?
How does Microchip plan to use the net proceeds from the Convertible Senior Notes offering?
What is the cap price for the capped call transactions related to Microchip's Convertible Senior Notes?
What is the benefit of Microchip's capped call transactions for shareholders?
When can Microchip redeem the Convertible Senior Notes?
