MP Materials Announces Pricing of $650 Million 3.00% Convertible Notes
- MP Materials Corp. pricing an offering of $650 million principal amount of its 3.00% Convertible Senior Notes due 2030.
- The offering includes an option to purchase an additional $97.5 million, up from the initial $500 million.
- Expected to close on March 7, 2024, the notes will mature on March 1, 2030, with an initial conversion rate of 45.9939 shares per $1,000 principal amount.
- Net proceeds estimated at around $632.8 million, intended for various purposes including repurchasing shares and convertible notes.
- None.
Insights
The recent actions by MP Materials Corp. reflect a strategic approach to capital management and balance sheet optimization. The upsizing of their convertible senior notes offering from $500 million to $650 million indicates strong market demand and investor confidence. The conversion premium of approximately 40% is notable, as it suggests a bullish outlook on the company's stock by investors, expecting the stock price to rise significantly over the next few years.
Entering into capped call transactions is a common hedging strategy that allows the company to manage dilution and potential cash outflow upon conversion of the notes. The cap price being set at a 100% premium to the current stock price further underscores the company's positive future earnings expectations. This strategy also reflects a proactive stance in managing potential share price volatility upon conversion of the notes.
Repurchasing 6.9% of common shares using proceeds from the offering is a significant buyback that can be accretive to earnings per share (EPS) by reducing the number of shares outstanding. This buyback, along with the repurchase of existing convertible notes, demonstrates a commitment to shareholder value and confidence in the company's cash flow generation capabilities.
MP Materials' move to repurchase a portion of its 2026 notes before maturity reflects a strategic decision to manage its debt profile and take advantage of the current interest rate environment. The decision to repurchase at a price lower than the principal amount indicates favorable market conditions and a savvy use of capital to reduce future interest expenses.
The impact on the stock market is multifaceted. The company's actions may be perceived as a signal of strong financial health and a robust strategic plan, potentially leading to a positive investor sentiment. Conversely, the increase in leverage due to the new senior notes could be a concern for risk-averse investors. However, the capped call transactions should mitigate these concerns to some extent by providing a hedge against dilution.
MP Materials' activities surrounding the offering and the subsequent derivative transactions by the capped call counterparties may result in increased volatility in the stock price. Investors should be aware of these potential market dynamics when assessing the company's stock performance.
The offering of convertible senior notes and the associated capped call transactions are complex financial instruments subject to specific legal and regulatory frameworks. The private offering to qualified institutional buyers under Rule 144A allows for a more expedited process compared to a public offering, but it limits the pool of potential investors.
It is important to note that these securities have not been registered under the Securities Act or state securities laws. The reliance on exemptions from registration requirements underscores the need for potential investors to have a sophisticated understanding of such financial instruments and their associated risks.
The legal stipulations around the possibility of a redemption of the notes, the conditions under which conversions can occur and the provisions for a fundamental change repurchase event are critical for investors to understand. These terms can significantly affect the financial outcomes for both the company and the note holders.
Company entered into capped call transactions to increase effective conversion premium to
Company repurchased approximately 12.3 million shares of common stock using approximately
Company repurchased
The notes will be senior unsecured obligations of MP Materials, and interest will be payable semi-annually in arrears on March 1 and September 1 of each year, beginning on September 1, 2024. The notes will mature on March 1, 2030, unless earlier converted, redeemed or repurchased. MP Materials may redeem for cash all or any portion of the notes (subject to a partial redemption limitation), at MP Materials’ option, on or after March 5, 2027 and prior to the 41st scheduled trading day immediately preceding the maturity date, if (i) certain liquidity conditions are met and (ii) the last reported sale price of MP Materials’ common stock (the “common stock”) has been at least
The notes will be convertible into cash, shares of common stock or a combination of cash and shares of common stock at MP Materials’ election at an initial conversion rate of 45.9939 shares of common stock per
Prior to the close of business on the business day immediately preceding December 1, 2029, the notes will be convertible at the option of the holders only upon the satisfaction of certain conditions and during certain periods. Thereafter, until the close of business on the second scheduled trading day immediately preceding the maturity date, the notes will be convertible at the option of the holders at any time. If MP Materials undergoes a fundamental change (as defined in the indenture governing the notes), holders may require MP Materials to purchase for cash all or any portion of their notes at a fundamental change repurchase price equal to
MP Materials estimates that the net proceeds from the offering will be approximately
In connection with the pricing of the notes, MP Materials has entered into privately negotiated capped call transactions with one or more of the initial purchasers of the notes or their respective affiliates and certain financial institutions (the “capped call counterparties”). The capped call transactions cover, subject to anti-dilution adjustments substantially similar to those applicable to the notes, the number of shares of common stock that initially underlie the notes, assuming the initial purchasers do not exercise their option to purchase additional notes. The cap price of the capped call transactions is initially
In connection with establishing their initial hedges of the capped call transactions, the capped call counterparties have advised MP Materials that they or their respective affiliates expect to enter into various derivative transactions with respect to the common stock concurrently with, or shortly after, the pricing of the notes, and may unwind these various derivative transactions and purchase common stock in open market transactions 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 capped call 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 of MP Materials’ securities in secondary market transactions following the pricing of the notes and prior to the maturity of the notes (and are likely to do so during any observation period related to a conversion of a note). 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 noteholders’ ability to convert the notes and, to the extent the activity occurs during any observation period related to a conversion of the notes, it could affect the number of shares and value of the consideration that noteholders will receive upon conversion of the notes.
Concurrently with the pricing of the notes, the Company entered into one or more separate and individually negotiated transactions with certain holders of the 2026 notes to repurchase for cash a portion of the 2026 notes on terms negotiated with each such holder (the “note repurchases”). The Company expects that holders of the 2026 notes that sell their 2026 notes to the Company in any note repurchase transaction may enter into or unwind various derivatives with respect to the common stock and/or purchase or sell shares of the common stock in the market to hedge their exposure in connection with these transactions. In particular, the Company expects that many holders of the 2026 notes employ a convertible arbitrage strategy with respect to the 2026 notes and have a short position with respect to the common stock that they would close, through purchases of the common stock and/or the entry into or unwind of economically equivalent derivatives transactions with respect to the common stock, in connection with the Company’s repurchase of its 2026 notes for cash. 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 and could result in a higher effective conversion price for the notes.
Concurrently with the pricing of the notes and the note repurchases, the Company agreed to repurchase approximately 12.3 million shares of common stock from purchasers of notes in privately negotiated transactions effected with or through one of the initial purchasers or its affiliate, pursuant to a newly adopted share repurchase program, at a purchase price per share equal to
The notes and the shares of common stock issuable upon conversion of the notes have not been, and will not be, registered under the Securities Act, or under any state securities laws, and may not be offered or sold in
About MP Materials
MP Materials (NYSE: MP) produces specialty materials that are vital inputs for electrification and other advanced technologies. MP’s Mountain Pass facility is America’s only scaled rare earth production source. The Company is currently expanding its manufacturing operations downstream to provide a full supply chain solution from materials to magnetics.
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Forward-Looking Statements
Certain statements included in this press release that are not historical facts are forward-looking statements under Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements may be identified by the use of the words such as “estimate,” “plan,” “shall,” “may,” “project,” “forecast,” “intend,” “expect,” “anticipate,” “believe,” “seek,” “target,” or similar expressions that predict or indicate future events or trends or that are not statements of historical matters. These forward-looking statements include, but are not limited to, expectations regarding the proposed notes offering and the use of proceeds therefrom. These statements are based on various assumptions, whether or not identified in this press release, and on the current expectations of our management and are not predictions of actual performance. These forward-looking statements are provided for illustrative purposes only and are not intended to serve as, and must not be relied on by any investor as, a guarantee, an assurance, a prediction or a definitive statement of fact or probability. Actual events and circumstances are difficult or impossible to predict and will differ from assumptions. Many actual events and circumstances are beyond the control of MP Materials. These forward-looking statements are subject to a number of risks and uncertainties, including, without limitation, those discussed in MP Materials’ Annual Report on Form 10-K filed on February 28, 2024 under the heading “Risk Factors” and other documents filed by MP Materials with the SEC. If any of these risks materialize or our assumptions prove incorrect, actual results could differ materially from the results implied by these forward-looking statements. There may be additional risks that MP Materials does not presently know or that MP Materials currently believes are immaterial that could also cause actual results to differ from those contained in the forward-looking statements. In addition, forward-looking statements reflect MP Materials’ expectations, plans or forecasts of future events and views as of the date of this press release. MP Materials anticipates that subsequent events and developments will cause MP Materials’ assessments to change. However, while MP Materials may elect to update these forward-looking statements at some point in the future, MP Materials specifically disclaims any obligation to do so, unless required by applicable law. These forward-looking statements should not be relied upon as representing MP Materials’ assessments as of any date subsequent to the date of this press release. Accordingly, undue reliance should not be placed upon the forward-looking statements.
View source version on businesswire.com: https://www.businesswire.com/news/home/20240304480888/en/
Investors:
Martin Sheehan
IR@mpmaterials.com
Media:
Matt Sloustcher
media@mpmaterials.com
Source: MP Materials
FAQ
What is the principal amount of the 3.00% Convertible Senior Notes due 2030 offered by MP Materials Corp.?
What is the initial conversion rate for the notes?
When is the expected closing date for the offering?
What are the estimated net proceeds from the offering?
How does MP Materials plan to use the net proceeds from the offering?
