SoFi Technologies, Inc. Prices $750 Million Convertible Senior Notes Offering Due 2029
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Insights
The issuance of $750 million in 1.25% convertible senior notes due 2029 by SoFi Technologies, Inc. represents a significant capital-raising activity that warrants attention from investors and market analysts. Convertible notes are a form of debt that can be converted into equity, typically stock, at a later date under specified conditions, which can dilute existing shareholders but also provide financing without immediately impacting the company's equity structure.
This financing strategy can be indicative of a company looking to leverage its growth prospects without resorting to equity financing that could be more dilutive at present. It's crucial to assess the potential impact on SoFi's balance sheet and interest expenses, as well as the implied confidence of institutional investors who are the target buyers of such securities. The relatively low interest rate of 1.25% suggests a favorable view of SoFi's creditworthiness, but also reflects the current low-yield environment.
Furthermore, the option for initial purchasers to acquire an additional $112.5 million of notes suggests the potential for over-subscription, which could indicate strong market demand for SoFi's debt. This additional capital could provide SoFi with more flexibility to invest in strategic initiatives or pay off existing debts.
From a market perspective, the announcement of convertible notes by SoFi may signal strategic moves that could affect the company's stock performance. Investors often view convertible debt as a precursor to growth initiatives that could either significantly enhance the company's market position or increase financial risk due to the added debt burden.
Analyzing the terms of the conversion, such as the conversion rate and any associated caps or floors, is essential as these terms will determine the potential for equity dilution and the attractiveness of the notes to investors. The impact on SoFi's stock could be nuanced, as the market weighs the benefits of the capital raise against the potential for future dilution and interest payment obligations.
It's also important to consider the broader industry context, including competitive dynamics and interest rate environment, as these factors can influence investor sentiment towards such financial instruments. The tech and fintech sectors, where SoFi operates, are particularly sensitive to capital structure decisions due to the high growth and high volatility nature of these markets.
The private offering of convertible notes is subject to specific regulatory conditions, such as Rule 144A under the Securities Act of 1933. This rule allows for the sale of securities primarily to qualified institutional buyers, which is a category of investors that includes banks, insurance companies and investment funds, among others, that manage a substantial amount of securities.
The choice of a private offering and the reliance on Rule 144A can be seen as a way to streamline the capital-raising process by limiting the offering to sophisticated investors. This approach can reduce the regulatory burden and expedite access to capital, but also limits the pool of potential investors, which might affect the liquidity and marketability of the notes.
Understanding the legal framework and the reasons behind choosing such a financing route is crucial for stakeholders. It provides insights into the company's strategic financial planning and its approach to regulatory compliance and investor relations.
The notes will be unsecured, unsubordinated obligations of SoFi and will accrue interest at a rate of
The notes will also be redeemable, in whole or in part, for cash at SoFi’s option at any time, and from time to time, on or after March 15, 2027 and on or before the 30th scheduled trading day immediately before the maturity date, but only if the last reported sale price per share of SoFi’s common stock exceeds
In addition, in certain limited circumstances, noteholders may require SoFi to repurchase their notes for cash for a repurchase price equal to the principal amount of the notes to be repurchased, plus accrued and unpaid special and additional interest thereon to, but excluding, the applicable repurchase date.
SoFi estimates that the net proceeds from the offering will be approximately
In connection with the pricing of the notes, SoFi entered into privately negotiated capped call transactions with one or more of the initial purchasers or their affiliates and/or other financial institutions (the “option counterparties”). The capped call transactions will cover, subject to customary anti-dilution adjustments, the number of shares of SoFi’s common stock that initially underlie the notes. If the initial purchasers exercise their option to purchase additional notes, SoFi 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 SoFi’s common stock upon any conversion of the notes and/or, at SoFi’s election and subject to certain conditions, offset any potential cash payments SoFi 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
SoFi 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 SoFi’s common stock and/or purchase shares of SoFi’s common stock concurrently with or shortly after the pricing of the notes, including with or from, as the case may be, certain investors in the notes. This activity could increase (or reduce the size of any decrease in) the market price of SoFi’s common stock or the notes at that time.
In addition, SoFi has been advised that the option counterparties or their respective affiliates may modify their hedge positions by entering into or unwinding various derivatives with respect to SoFi’s common stock and/or purchasing or selling SoFi’s common stock or other 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 the relevant valuation period under the capped call transactions or in connection with any repurchase, redemption, exchange or early conversion of the notes or any other date on which the notes are retired by SoFi, in each case, if SoFi exercises the relevant election to terminate a portion of the capped call transactions). This activity could also cause or avoid an increase or decrease in the market price of SoFi’s 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 notes, it could affect the number of shares and value of the consideration that a noteholder will receive upon conversion of the notes.
On March 4, 2024, in separate, privately negotiated transactions, SoFi entered into exchange agreements with a limited number of holders of its
In connection with issuing the 2026 notes, SoFi entered into privately negotiated capped call transactions (the “existing capped call transactions”) with certain financial institutions (the “existing option counterparties”). In connection with exchanges by SoFi of its 2026 notes for shares of SoFi common stock discussed above, SoFi entered into agreements with one or more of the existing option counterparties to terminate a portion of these existing capped call transactions up to the notional amount corresponding to the amount of 2026 notes exchanged. In connection with the termination of any of these transactions, SoFi expects the existing option counterparties or their respective affiliates to unwind their related hedge positions, which may involve the sale of shares of SoFi’s common stock in the open market or other transactions with respect to SoFi’s common stock. This hedge unwind activity could offset or exacerbate the effects of the purchase, sale or other activity that holders of the 2026 notes that participate in the exchange or repurchase transactions may effect in connection with those transactions.
The offer and sale of the notes and any shares of SoFi’s common stock issuable upon conversion of the notes have not been registered under the Securities Act or any other applicable securities laws. As a result, the notes and the shares of SoFi’s common stock, if any, issuable upon conversion of the notes will be subject to restrictions on transferability and resale and may not be offered, transferred or sold, except in compliance with the registration requirements of the Securities Act or pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act and any other applicable securities laws.
This press release does not and will not constitute an offer to sell, or the solicitation of an offer to buy, the notes, any shares of SoFi’s common stock issuable upon conversion of the notes, or any other securities, nor will there be any sale of the notes or any such shares or other securities, in any state or other jurisdiction in which such offer, sale or solicitation would be unlawful. Any offer will be made only by means of a private offering memorandum.
About SoFi Technologies, Inc.
SoFi (NASDAQ: SOFI) is a member-centric, one-stop shop for digital financial services on a mission to help people achieve financial independence to realize their ambitions. The company’s full suite of financial products and services helps its more than 7.5 million SoFi members borrow, save, spend, invest, and protect their money better by giving them fast access to the tools they need to get their money right, all in one app. SoFi also equips members with the resources they need to get ahead – like career advisors, Credentialed Financial Planners, exclusive experiences and events, and a thriving community – on their path to financial independence.
SoFi innovates across three business segments: Lending, Financial Services – which includes SoFi Checking and Savings, SoFi Invest, SoFi Credit Card, SoFi Protect, and SoFi Insights – and Technology Platform, which offers the only end-to-end vertically integrated financial technology stack. SoFi Bank, N.A., an affiliate of SoFi, is a nationally chartered bank, regulated by the OCC and FDIC and SoFi is a bank holding company regulated by the Federal Reserve. The company is also the naming rights partner of SoFi Stadium, home of the Los Angeles Chargers and the Los Angeles Rams.
Forward-Looking Statements
This press release includes forward-looking statements, including statements regarding the completion of the offering, the expected amount and intended use of the net proceeds and the effects of entering into the capped call transactions, the completion of the transactions contemplated by the exchange agreements and the effects of entering into the unwind agreements described above. Forward-looking statements represent SoFi’s current expectations regarding future events and are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from those implied by the forward-looking statements, and there can be no assurance that future developments affecting SoFi will be those that it has anticipated. Among those risks and uncertainties are market conditions, including market interest rates, the trading price and volatility of SoFi’s common stock and risks relating to SoFi’s business, including those described in periodic reports that SoFi files from time to time with the SEC. SoFi may not consummate the proposed offering described in this press release and, if the offering is consummated, 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. For additional information on these and other factors that could affect SoFi’s actual results, see the risk factors set forth in SoFi’s filings with the SEC, including the most recent Annual Report filed with the SEC on February 27, 2024. The forward-looking statements included in this press release speak only as of the date of this press release, and SoFi does not undertake to update the statements included in this press release for subsequent developments, except as may be required by law.
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View source version on businesswire.com: https://www.businesswire.com/news/home/20240305635218/en/
Investors:
Josh Fagen
SoFi
jfagen@sofi.org
Media:
Meghan Brown
SoFi
mebrown@sofi.org
Source: SoFi Technologies
FAQ
What type of notes did SoFi announce the pricing of?
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Under which rule are the notes being offered?
What option did SoFi grant the initial purchasers of the notes?
