REPAY Announces Pricing of Convertible Notes Offering
Repay Holdings (NASDAQ: RPAY) announced the pricing of its $260 million convertible senior notes due 2029, with an option for initial purchasers to buy an additional $27.5 million. The offering, closing on July 8, 2024, aims to net approximately $252.4 million, or $279.2 million if the option is exercised. The proceeds will primarily fund the repurchase of 2026 notes, capped call transactions, common stock repurchase, and general corporate purposes.
The notes will accrue interest at 2.875% annually and can be converted into cash or common stock under specific conditions. The initial conversion price is set at $13.02 per share, representing a 27.5% premium over the July 2, 2024, closing price. Redemption is possible after July 20, 2027, under certain conditions.
Capped call transactions aim to limit dilution and offset cash payments. The company also plans to repurchase $220 million of 2026 notes and approximately 3.9 million shares of common stock at $10.21 per share. The notes will be offered to qualified institutional buyers under Rule 144A.
- Raised $260 million through convertible senior notes with an option for an additional $27.5 million.
- Expected net proceeds of $252.4 million, potentially $279.2 million if the option is fully exercised.
- Interest rate of 2.875% per annum on the convertible notes.
- Initial conversion price set at a 27.5% premium ($13.02 per share).
- Capped call transactions to reduce potential stock dilution.
- Significant portion of proceeds ($177 million) allocated to repurchase existing 2026 notes, reflecting refinancing rather than new growth investment.
- Potential dilution of shares due to convertible notes issuance.
- Convertible notes and stock not registered under the Securities Act, limiting liquidity for investors.
Insights
Repay Holdings Corporation’s announcement of the
The fact that the interest rate is set at 2.875% is also appealing, as it is relatively low-cost debt for the company. The proceeds from these notes will be partly used to repurchase the 2026 notes and shares of the common stock, which is a strategic move to manage existing debt more efficiently and potentially minimize dilution for existing shareholders. This could signal to investors that the company is actively managing its debt profile to optimize its balance sheet.
The capped call transactions, priced initially at $20.42 per share, represent a significant premium over the current share price. These transactions are designed to mitigate dilution and provide some downside protection for the investors in the convertible notes. This could be seen as a proactive step to maintain shareholder value, but the success of this hedging strategy will ultimately depend on the stock’s performance and the market conditions leading up to the maturity date in 2029.
From an investor perspective, the use of proceeds is crucial. The allocation of a substantial portion of the net proceeds to repurchase existing debt and common stock rather than reinvesting in the business may generate mixed reactions. While it can be seen as a prudent financial management move, some investors may prefer to see more funds directed towards growth initiatives.
The issuance of convertible notes by Repay Holdings Corporation comes at a time when the market is paying close attention to companies' capitalization strategies. The choice to issue senior unsecured obligations indicates a level of confidence in the company’s creditworthiness, as these notes are not backed by collateral and hence rely heavily on the company's ability to meet its financial obligations through its operations.
The timing of this announcement, with a closing date expected on July 8, 2024, is also strategic. It provides a clear runway for the company to prepare for any market conditions that might influence the offering’s success. Additionally, the ability for initial purchasers to acquire an extra
Investors should also take note of the repurchase of approximately $220.0 million of the 2026 notes using a mix of the proceeds and cash on hand. This action can help de-risk the company's financial structure by eliminating near-term debt, improving liquidity and potentially enhancing the company's credit rating. However, it could also reflect on the company’s current cash flow capabilities and their preference to balance short-term and long-term debt obligations.
For retail investors, understanding the implications of the convertible feature is paramount. The initial conversion rate of 76.8182 shares per $1,000 principal amount, translating to a conversion price of about $13.02 per share, offers a notable upside if the company's stock appreciates significantly from its current levels. The 27.5% premium over the existing share price is a typical structure designed to align interests of both debt holders and equity investors.
The Company granted to the initial purchasers of the Convertible Notes an option to purchase up to an additional
The Company anticipates that the aggregate net proceeds from the offering will be approximately
In connection with the pricing of the Convertible Notes, the Company entered into privately negotiated capped call transactions with certain financial institutions, including one or more of the initial purchasers of the Convertible Notes or their respective affiliates (the “option counterparties”). The cap price of the capped call transactions will initially be
The Convertible Notes will be senior unsecured obligations of the Company and will accrue interest at a rate of
The Convertible Notes will be convertible, on the terms set forth in the indenture governing the Convertible Notes, into cash up to the aggregate principal amount of the Convertible Notes to be converted and cash, shares of the common stock or a combination of cash and shares of the common stock, at the Company’s election, in respect of the remainder, if any, of the Company’s conversion obligation in excess of the aggregate principal amount of the Convertible Notes being converted. The conversion rate will initially be 76.8182 shares of common stock per
The Company may not redeem the Convertible Notes prior to July 20, 2027. The Company may redeem for cash all or any portion of the Convertible Notes, at its option, on or after July 20, 2027, if certain liquidity conditions are satisfied and if the last reported sale price of the common stock has been at least
The capped call transactions are expected generally to reduce potential dilution to the common stock upon conversion of any Convertible Notes and/or offset any cash payments the Company is required to make in excess of the principal amount of converted Convertible Notes, as the case may be, with such reduction and/or offset subject to a cap.
In connection with establishing their initial hedges of the capped call transactions, the Company expects the option counterparties or their respective affiliates to purchase shares of the common stock and/or enter into various derivative transactions with respect to the 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 the 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 the common stock and/or purchasing or selling shares of the common stock or other securities of the Company 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 on each exercise date for the capped call transactions or following any termination of any portion of the capped call transactions in connection with any repurchase, redemption or early conversion of the Convertible Notes). This activity could also cause or avoid an increase or decrease in the market price of the common stock or the Convertible Notes, which could affect holders of the Convertible Notes’ ability to convert the Convertible Notes and, to the extent the activity occurs following conversion of the Convertible Notes or during any observation period related to a conversion of the Convertible Notes, it could affect the amount and value of the consideration that holders of the Convertible Notes will receive upon conversion of such Convertible Notes.
Contemporaneously with the pricing of the Convertible Notes, the Company entered into one or more separate and individually negotiated transactions with certain holders of the 2026 notes to use approximately
The Company expects that holders of the 2026 notes that sell their 2026 notes to it 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 shares 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 their 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 Convertible Notes at that time and could result in a higher effective conversion price for the Convertible Notes.
In addition, the Company expects to use approximately
The Convertible Notes and any shares of common stock issuable upon conversion of the Convertible Notes will not be registered under the Securities Act of 1933, as amended (the “Securities Act”), or any state securities laws, and may not be offered or sold in
This press release does not constitute an offer to sell, or a solicitation of an offer to buy, nor shall there be any sale of the Convertible Notes or common stock in any state or jurisdiction in which such an offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such state or jurisdiction.
About Repay
REPAY provides integrated payment processing solutions to verticals that have specific transaction processing needs. REPAY’s proprietary, integrated payment technology platform reduces the complexity of electronic payments for clients, while enhancing the overall experience for consumers and businesses.
Forward-Looking Statements
This communication contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements include, but are not limited to, statements about the timing and terms of the offering and the proposed use of proceeds and other statements identified by words such as “will likely result,” “are expected to,” “will continue,” “is anticipated,” “estimated,” “believe,” “intend,” “plan,” “projection,” “outlook” or words of similar meaning. Such forward-looking statements are based upon the current beliefs and expectations of REPAY’S management and are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are difficult to predict and generally beyond REPAY’s control, including, without limitation, the factors described in REPAY’s reports filed with the SEC. Actual results and the timing of events may differ materially from the results anticipated in these forward-looking statements.
All information set forth herein speaks only as of the date hereof in the case of information about REPAY or the date of such information in the case of information from persons other than REPAY, and we disclaim any intention or obligation to update any forward-looking statements as a result of developments occurring after the date of this communication.
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Investor Relations Contact for REPAY:
ir@repay.com
Media Relations Contact for REPAY:
Kristen Hoyman
khoyman@repay.com
Source: Repay Holdings Corporation
FAQ
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