Progress Software Announces Upsize and Pricing of Convertible Senior Notes Offering
- Progress Software Corporation announces a private offering of $400.0 million aggregate principal amount of 3.50% Convertible Senior Notes due 2030 to qualified institutional buyers.
- The offering includes an option for the initial purchasers to buy up to an additional $50.0 million aggregate principal amount of the Notes.
- The offering size was increased from $350.0 million to $400.0 million (or $402.5 million if the initial purchasers exercise their option in full).
- The Notes will mature on March 1, 2030, and bear interest at a rate of 3.50% per year, payable semi-annually.
- Noteholders will have the right to convert their Notes before November 1, 2029, under certain conditions.
- Progress estimates net proceeds of approximately $389.3 million from the offering.
- The company intends to use the proceeds for various purposes, including debt repayment, share repurchases, and general corporate needs.
- Progress entered into capped call transactions to reduce potential dilution to its common stock upon conversion of the Notes.
- None.
Insights
Progress Software Corporation's issuance of $400 million in Convertible Senior Notes reflects a strategic capital raising effort. The interest rate of 3.50% is moderately attractive, given the current interest rate environment, suggesting a solid demand for the company's debt. The option for additional purchases of $50 million to cover overallotments indicates a potential over-subscription, which is a positive sign of investor confidence.
From an investment perspective, the conversion premium of 27.50% is notable. It aligns with typical premiums for similar convertible debt offerings, balancing investor upside in equity conversion with protection against equity value dilution. The capped call transactions are a defensive maneuver to manage dilution and stabilize the stock price, which could reassure shareholders concerned about equity value erosion upon conversion.
The use of proceeds to repay existing debt and buy back shares suggests a proactive capital management strategy. It should be noted that the share repurchase could be accretive to earnings per share, potentially boosting investor sentiment. However, investors should also consider the impact of hedging activities by the option counterparties, which could affect the stock's market price and the conversion value of the notes.
Progress Software's decision to increase the principal amount from the previously announced $350 million to $400 million indicates robust market demand for its debt instruments. The timing of this offering and the decision to repay the term loan credit facility suggest a strategic shift towards more flexible financing, which could improve the company's debt profile and interest expense outlook.
The repurchase of common stock in conjunction with the offering is a strategic move that could signal to the market a self-assessment of undervaluation. However, the timing and execution of these repurchases, as well as the subsequent hedging activities by the option counterparties, could introduce volatility to the stock price, which stakeholders should monitor closely.
Investors and analysts should also scrutinize the capped call transactions. While they are designed to minimize dilution, the cap price set at a 75% premium to the current stock price is aggressive and may reflect management's confidence in the company's growth prospects. The effectiveness of these capped call transactions in offsetting dilution and maintaining stock price stability will be an important factor for long-term investors to consider.
The offering's compliance with Rule 144A is a critical legal aspect as it allows Progress Software to raise capital from qualified institutional buyers without the need for a public registration, streamlining the process. However, it limits the liquidity of the notes, as they cannot be readily sold to the general public.
The conversion features and potential adjustments to the conversion rate and price require careful legal structuring to ensure they meet regulatory standards and protect both the issuer and the note holders. The terms around 'fundamental change' repurchase rights and the specific conditions under which the notes can be redeemed or converted are significant. These terms must be clearly defined to avoid legal disputes and ensure that investors understand the circumstances that could affect their investment.
Finally, the legal ramifications of the capped call transactions and the potential unwinding of hedge positions by the option counterparties should be closely examined. These actions have direct implications for the market perception of the offering and the company's financial stability and they must be conducted in compliance with securities regulations to avoid legal repercussions.
BURLINGTON, Mass., Feb. 27, 2024 (GLOBE NEWSWIRE) -- Progress Software Corporation (NASDAQ: PRGS) (“Progress”) today announced the pricing of its private offering of
The Notes will be Progress’ senior unsecured obligations and will mature on March 1, 2030, unless earlier converted, redeemed or repurchased. The Notes will bear interest at a rate of
The Notes will not be redeemable before March 5, 2027. The Notes will be redeemable, in whole or in part, for cash at Progress’ option at any time, and from time to time, on or after March 5, 2027 and on or before the 60th scheduled trading day immediately before the maturity date, but only if the last reported sale price per share of Progress’ common stock exceeds
If a “fundamental change” (as will be defined in the indenture for the Notes) occurs, then, subject to a limited exception, Noteholders may require Progress to repurchase their Notes for cash. The repurchase price will be equal to the principal amount of the Notes to be repurchased, plus accrued and unpaid interest to, but excluding, the applicable repurchase date.
Progress estimates that the net proceeds from the offering will be approximately
Progress intends to use the net proceeds from the offering (i) to repay amounts outstanding under its term loan credit facility, (ii) to fund the approximate
In connection with the pricing of the Notes, Progress entered into privately negotiated capped call transactions with one or more of the initial purchasers and/or their respective affiliates and/or other financial institutions (the “option counterparties”). The capped call transactions will cover, subject to anti-dilution adjustments substantially similar to those applicable to the Notes, the number of shares of common stock initially underlying the Notes. If the initial purchasers exercise their option to purchase additional Notes, then Progress expects to enter into additional capped call transactions with the option counterparties. The capped call transactions are expected generally to reduce the potential dilution to Progress’ common stock upon any conversion of the Notes and/or offset any potential cash payments Progress is required to 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 approximately
In connection with establishing their initial hedges of the capped call transactions, the option counterparties or their respective affiliates expect to purchase shares of Progress’ common stock and/or enter into various derivative transactions with respect to Progress’ 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 Progress’ 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 Progress’ common stock and/or purchasing or selling Progress’ common stock or other securities issued by Progress in secondary market transactions following the pricing of the Notes and prior to the maturity of the Notes (and (x) are likely to do so during any observation period related to a conversion of the Notes, following any redemption of the Notes by Progress or following any repurchase of the Notes by Progress in connection with any fundamental change and (y) are likely to do so following any repurchase of the Notes by Progress other than in connection with any such redemption or any such fundamental change if Progress elects to unwind a corresponding portion of the capped call transactions in connection with such repurchase). This activity could also cause or avoid an increase or a decrease in the market price of Progress’ common stock or the Notes, which could affect a Noteholder’s 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 of Progress’ common stock and value of the consideration that a Noteholder will receive upon conversion of the Notes.
In addition, if any such capped call transaction fails to become effective, whether or not the offering of the Notes is completed, the option counterparty party thereto may unwind its hedge positions with respect to Progress’ common stock, which could adversely affect the value of Progress’ common stock and, if the Notes have been issued, the value of the Notes.
The concurrent repurchases of shares of Progress’ common stock described above may have resulted in the common stock trading at prices that are higher than would be the case in the absence of these repurchases, which may have resulted in a higher initial conversion price for the Notes Progress is offering.
The Notes will be offered and sold only to persons reasonably believed to be qualified institutional buyers pursuant to Rule 144A under the Securities Act. The Notes and any shares of Progress’ common stock issuable upon conversion of the Notes have not been registered under the Securities Act, or any state securities law, and the Notes and any such shares may not be offered or sold in the United States or to any U.S. persons absent registration under, or pursuant to an exemption from, or in a transaction not subject to, the Securities Act and applicable state securities laws.
This press release does not constitute an offer to sell or a solicitation of an offer to buy the Notes or any shares of Progress’ common stock issuable upon conversion of the Notes, nor shall there be any offer, solicitation or sale of any Notes or any such shares of Progress’ common stock issuable upon conversion of the Notes in any jurisdiction in which such offer, solicitation or sale would be unlawful.
About Progress
Progress provides enterprise software products for the development, deployment and management of high-impact business applications. With Progress, businesses can automate and optimize the process by which applications are developed, deployed and managed, making critical data and content more accessible and secure and technology teams more productive.
Progress and Progress Software are trademarks or registered trademarks of Progress Software Corporation and/or its subsidiaries or affiliates in the U.S. and other countries. Any other names contained herein may be trademarks of their respective owners.
Forward-Looking Statements
This press release contains statements that are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Progress has identified some of these forward-looking statements with words like “believes,” “expects,” “may,” “could,” “would,” “might,” “will,” “should,” “seeks,” “intends,” “plans,” “estimates,” “targets,” or “anticipates,” or similar expressions which concern our strategy, plans, projections or intentions. Forward looking statements in this press release include, but are not limited to, statements regarding the completion, timing and size of the proposed offering, the intended use of proceeds, the terms of the Notes being offered, the anticipated terms of, and the effects of entering into, the capped call transactions and the actions of the option counterparties and their respective affiliates. By their nature, forward-looking statements: speak only as of the date they are made; are not statements of historical fact or guarantees of future performance; and are subject to risks, uncertainties, assumptions, or changes in circumstances that are difficult to predict or quantify. Our expectations, beliefs, and projections are expressed in good faith and we believe there is a reasonable basis for them. However, there can be no assurance that management’s expectations, beliefs and projections will result or be achieved and actual results may vary materially from what is expressed in or indicated by the forward-looking statements. These forward-looking statements are subject to a number of risks, uncertainties and assumptions, including those described under the “Risk Factors” section of our Annual Report on Form 10-K for the fiscal year ended November 30, 2023. Among those risks and uncertainties are market conditions, including market interest rates, the trading price and volatility of Progress’ common stock and risks relating to Progress’ business. Progress may not consummate the proposed offering described in this press release, and, if the proposed offering is consummated, Progress cannot provide any assurances regarding the final terms of the offering or the Notes or its ability to effectively apply the net proceeds as described above. Except as required by law, Progress has no obligation to update any of these forward-looking statements to conform these statements to actual results or revised expectations, which speak only as of the date of this press release.
| Investor Contact: | Press Contact: | |
| Michael Micciche | Erica McShane | |
| Progress Software | Progress Software | |
| +1 781 850 8450 | +1 781 280 4000 | |
| Investor-Relations@progress.com | PR@progress.com |
FAQ
What is the principal amount of the 3.50% Convertible Senior Notes due 2030 offered by Progress Software Corporation?
When is the expected closing date of the Notes offering by Progress Software Corporation?
What is the interest rate on the Notes offered by Progress Software Corporation?
What are the intended uses of the net proceeds from the Notes offering by Progress Software Corporation?
What did Progress Software Corporation do to reduce potential dilution to its common stock upon conversion of the Notes?
