Unity Announces Pricing of Upsized $600.0 Million Offering of Convertible Senior Notes

Rhea-AI Summary

Unity Software has announced the pricing of $600.0 million in 0% Convertible Senior Notes due 2030, an upsized offering from the previously announced $500.0 million. The company also granted initial purchasers an option to purchase up to an additional $90.0 million in notes.

Unity expects net proceeds of approximately $586.8 million (or $675.0 million if the additional purchase option is exercised). The company plans to use about $38.6 million for capped call transactions and the remaining proceeds, along with cash on hand, to repurchase approximately $644.3 million in aggregate principal amount of its 2026 Notes for approximately $600.0 million.

The Notes will mature on March 15, 2030, with an initial conversion rate of 27.6656 shares of Unity's common stock per $1,000 principal amount, equivalent to a conversion price of approximately $36.15 per share (a 32.5% premium to the February 24, 2025 closing price).

Positive

• Upsized offering from $500M to $600M indicates strong investor demand
• Expected net proceeds of $586.8M (potentially $675M with additional purchase option)
• Strategic debt refinancing by repurchasing $644.3M of 2026 Notes for $600M
• Capped call transactions reduce potential dilution to existing shareholders

Negative

• New debt issuance adds to financial obligations despite zero coupon rate
• Conversion of notes could lead to future dilution of existing shareholders
• Transaction costs include approximately $13.2M in discounts, commissions and expenses

Insights

Financial Analyst

Unity's announcement of a $600 million convertible note offering represents a strategic financial maneuver that deserves careful investor attention. This upsized offering (from the initially planned $500 million) comes at a critical juncture for the company.

The transaction's structure reveals several key insights. Unity is effectively refinancing its balance sheet by using these proceeds to repurchase $644.3 million of its 2026 convertible notes for approximately $600 million - capturing a ~7% discount on face value. This discount suggests the market had been valuing these existing notes below par, likely reflecting concerns about Unity's financial trajectory and conversion prospects.

The new notes' zero-coupon structure is particularly noteworthy in today's interest rate environment. While Unity avoids cash interest payments, the conversion premium of 32.5% (with a $36.15 conversion price) represents the effective cost. This premium is relatively modest compared to stronger technology companies, reflecting the market's assessment of Unity's risk profile and growth potential.

Unity's implementation of capped call transactions with a cap price of $47.74 (a 75% premium to current share price) serves as an anti-dilution insurance policy. These transactions effectively raise the economic conversion price and could reduce potential dilution by approximately 25-30%, protecting existing shareholders if Unity's stock appreciates substantially before maturity.

The financial engineering here extends Unity's debt maturity profile by four years (from 2026 to 2030) while maintaining a similar capital structure. This breathing room comes at a critical time as Unity navigates significant business challenges, including recent layoffs, pricing model controversies, and intense competition in the game engine market from Epic's Unreal Engine.

For investors, this transaction should be viewed as management buying time rather than addressing fundamental business challenges. While the refinancing reduces near-term liquidity pressure, Unity still faces the core challenge of improving its underlying business performance and competitive positioning to generate sufficient cash flow before these new obligations mature in 2030.

Corporate Finance Strategist

Unity's $600 million convertible note offering represents a calculated financial chess move that reveals much about both the company's current position and management's outlook. This debt restructuring transaction warrants careful analysis beyond the headline numbers.

The most telling aspect is Unity's ability to retire $644.3 million of 2026 notes for $600 million - capturing a 6.9% discount to face value. This discount indicates the market had been valuing these notes below par, reflecting concerns about Unity's fundamental performance and conversion prospects. By executing this transaction, management is opportunistically exploiting this market sentiment while extending its maturity runway by four years.

The conversion terms are particularly revealing. The 32.5% conversion premium is notably lower than the 40-50% premiums typically commanded by high-growth tech companies with stronger balance sheets. This suggests the market required more favorable conversion terms to absorb this debt, despite the zero-coupon structure that eliminates cash interest payments.

Unity's implementation of capped call transactions with a $47.74 cap price effectively creates a synthetic convertible with a higher conversion price. This financial engineering reduces potential dilution by approximately 25-30% if Unity's stock appreciates substantially. However, this dilution protection comes at a cost of $38.6 million - representing about 6.4% of the gross proceeds, which is on the higher end of typical capped call costs.

The timing of this refinancing is strategic, coming after Unity's recent restructuring announcements and amid ongoing challenges in its core business. By extending maturities to 2030, management is buying important time to execute its turnaround strategy without near-term refinancing pressure. However, this also increases the total potential dilution if Unity fails to generate sufficient organic cash flow before maturity.

For investors, this transaction should be viewed as a defensive financial move rather than a signal of strength. While it addresses near-term maturity concerns, the underlying business fundamentals that will determine Unity's ability to refinance or repay these notes in 2030 remain the critical factor to watch. The market's willingness to accept these terms suggests cautious optimism about Unity's long-term prospects, but with significant reservations about its current trajectory.

SAN FRANCISCO--(BUSINESS WIRE)-- Unity Software Inc. (“Unity”) (NYSE: U), the leading platform to create and grow games and interactive experiences, today announced the pricing of $600.0 million aggregate principal amount of 0% Convertible Senior Notes due 2030 (the “Notes”) in a private placement (the “Offering”) to persons reasonably believed to be qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended (the “Securities Act”). The aggregate principal amount of the Offering was increased from the previously announced offering size of $500.0 million.

Unity also granted the initial purchasers of the Notes an option to purchase, within a 13-day period beginning on, and including, the date on which the Notes are first issued, up to an additional $90.0 million aggregate principal amount of Notes. The sale of the Notes to the initial purchasers is expected to close on February 27, 2025, subject to customary closing conditions.

The Notes will be general unsecured obligations of Unity and will not bear regular interest, and the principal amount of the Notes will not accrete. The Notes will mature on March 15, 2030, unless earlier converted, redeemed or repurchased.

Unity estimates that the net proceeds from the Offering will be approximately $586.8 million (or approximately $675.0 million if the initial purchasers exercise their option to purchase additional Notes in full), after deducting the initial purchasers’ discounts and commissions and estimated Offering expenses payable by Unity. Unity expects to use approximately $38.6 million of the net proceeds from the Offering to pay the cost of the capped call transactions described below and the remaining net proceeds, together with cash on hand, to repurchase for approximately $600.0 million in cash approximately $644.3 million in aggregate principal amount of its 0% Convertible Senior Notes due 2026 (the “2026 Notes”) in the Note Repurchase Transactions (as described below). If the initial purchasers exercise their option to purchase additional Notes, Unity expects to use a portion of the net proceeds from the sale of the additional Notes to enter into additional capped call transactions and the remaining net proceeds for general corporate purposes, which may include additional repurchases of the 2026 Notes from time to time following the Offering, and acquisitions or strategic investments in complementary businesses or technologies (although Unity does not currently have any plans for any such acquisitions or investments), working capital, operating expenses and capital expenditures.

The Notes will be convertible at the option of the holders in certain circumstances. Upon conversion, Unity will pay or deliver, as the case may be, cash, shares of Unity’s common stock or a combination of cash and shares of Unity’s common stock, at its election. The initial conversion rate is 27.6656 shares of Unity’s common stock per $1,000 principal amount of Notes (equivalent to an initial conversion price of approximately $36.15 per share of Unity’s common stock, which represents a conversion premium of approximately 32.5% to the last reported sale price of Unity’s common stock on The New York Stock Exchange on February 24, 2025), and will be subject to customary anti-dilution adjustments.

Unity may not redeem the Notes prior to March 20, 2028. Unity may redeem for cash all or any portion of the Notes, at its option, on or after March 20, 2028 if the last reported sale price of Unity’s common stock has been at least 130% of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period (including the last trading day of such period) ending on, and including, the trading day immediately preceding the date on which Unity provides notice of redemption at a redemption price equal to 100% of the principal amount of the Notes to be redeemed, plus accrued and unpaid special interest, if any, to, but excluding, the redemption date. If Unity redeems less than all of the outstanding Notes, at least $100.0 million aggregate principal amount of Notes must be outstanding and not subject to redemption as of, and after giving effect to, delivery of the relevant redemption notice.

If Unity undergoes a “fundamental change,” then, subject to certain conditions and limited exceptions, holders may require Unity to repurchase for cash all or any portion of their Notes in principal amounts of $1,000 or an integral multiple thereof at a repurchase price equal to 100% of the principal amount of the Notes to be repurchased, plus accrued and unpaid special interest, if any, to, but excluding, the fundamental change repurchase date. In addition, following certain corporate events that occur prior to the maturity date of the Notes or if Unity delivers a notice of redemption, Unity will, in certain circumstances, increase the conversion rate of the Notes for a holder who elects to convert its Notes in connection with such a corporate event or convert its Notes called (or deemed called) for redemption during the related redemption period, as the case may be.

In connection with the pricing of the Notes, Unity entered into capped call transactions with certain of the initial purchasers or their respective affiliates and other financial institutions (the “Option Counterparties”). The capped call transactions cover, subject to customary adjustments, the number of shares of Unity’s common stock initially underlying the Notes. The capped call transactions are expected generally to reduce the potential dilution to Unity’s common stock upon any conversion of Notes and/or offset any cash payments Unity 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 relating to the Notes will initially be $47.74, which represents a premium of 75% over the last report sale price of Unity’s common stock on The New York Stock Exchange on February 24, 2025, and is subject to certain adjustments under the terms of the capped call transactions.

In connection with establishing their initial hedges of the capped call transactions, Unity expects the Option Counterparties or their respective affiliates will enter into various derivative transactions with respect to Unity’s common stock and/or purchase shares of Unity’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 Unity’s 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 Unity’s common stock and/or purchasing or selling Unity’s common stock or other securities of Unity in secondary market transactions following the pricing of the Notes and prior to the maturity date of the Notes (and are likely to do so during the 40 trading day period beginning on the 41^st scheduled trading day prior to the maturity date of the Notes, or, to the extent Unity exercises the relevant election under the capped call transactions, following any repurchase, redemption or conversion of the Notes). This activity could also cause or avoid an increase or a decrease in the market price of Unity’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, this could affect the number of shares, if any, and value of the consideration that a noteholder will receive upon conversion of its Notes.

Concurrently with the pricing of the notes in the Offering, Unity entered into privately negotiated transactions with certain holders of the 2026 Notes to repurchase, for approximately $600.0 million in cash, approximately $644.3 million aggregate principal amount of its 2026 Notes on terms negotiated with each holder of 2026 Notes repurchased and effected through one of the initial purchasers or one of its affiliates (each, a “Note Repurchase Transaction”). The Offering of the Notes is not contingent upon the repurchase of the 2026 Notes.

In connection with any Note Repurchase Transaction, Unity expects that holders of the 2026 Notes who agree to have their 2026 Notes repurchased and who have hedged their equity price risk with respect to such Notes (the “Hedged Holders”) will unwind all or part of their hedge positions by buying Unity’s common stock and/or entering into or unwinding various derivative transactions with respect to Unity’s common stock. The amount of Unity’s common stock to be purchased by the Hedged Holders or the notional amount of shares of Unity’s common stock underlying such derivative transactions may be substantial in relation to the historic average daily trading volume of Unity’s common stock. This activity by the Hedged Holders could increase (or reduce the size of any decrease in) the market price of Unity’s common stock, including concurrently with the pricing of the Notes, which could have resulted in a higher effective conversion price for the Notes. Unity cannot predict the magnitude of such market activity or the overall effect it will have on the price of the Notes offered hereby or its common stock.

The notes were only offered to persons reasonably believed to be qualified institutional buyers pursuant to Rule 144A promulgated under the Securities Act by means of a private offering memorandum. The Notes and any shares of Unity’s common stock issuable upon conversion of the Notes have not been and will not be registered under the Securities Act, any state securities laws or the securities laws of any other jurisdiction, and unless so registered, may not be offered or sold in the United States absent registration or an applicable exemption from, or in a transaction not subject to, the registration requirements of the Securities Act and other applicable securities laws.

This press release is neither an offer to sell nor a solicitation of an offer to buy any of these securities nor shall there be any sale of these securities in any state or jurisdiction in which such an offer, solicitation or sale would be unlawful prior to the registration or qualification thereof under the securities laws of any such state or jurisdiction.

Forward-Looking Statements

This press release contains “forward-looking” statements that involve risks and uncertainties regarding, among other things, the proposed Offering, including statements concerning the anticipated completion and timing of the Notes, the capped call transactions, the Note Repurchase Transactions and any unwind transactions; the anticipated use of proceeds from the proposed Offering; and the potential impact of the forgoing or related transactions on dilution to holders of Unity’s common stock, the market price of our common stock or the trading price of the Notes. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause actual events to differ materially from Unity’s plans. These risks include, but are not limited to, market risks, trends and conditions, and those risks included in the section titled “Risk Factors” in Unity’s Securities and Exchange Commission (“SEC”) filings and reports, including its Annual Report on Form 10-K for the year ended December 31, 2024 and other filings that Unity makes from time to time with the SEC, which are available on the SEC’s website at www.sec.gov. All forward-looking statements contained in this press release speak only as of the date on which they were made. Unity undertakes no obligation to update such statements to reflect events that occur or circumstances that exist after the date on which they were made.

Source: Unity

View source version on businesswire.com: https://www.businesswire.com/news/home/20250224918045/en/

Unity PR Contact:

Julianne Whitelaw

UnityComms@unity3d.com

Source: Unity Software Inc.

FAQ

What is the size of Unity's (U) convertible notes offering announced in February 2025?

Unity announced an upsized $600 million offering of 0% Convertible Senior Notes due 2030, increased from the previously announced $500 million offering size.

What is the conversion price for Unity's (U) 2030 convertible notes?

The initial conversion price is approximately $36.15 per share, representing a 32.5% premium to Unity's stock price on February 24, 2025.

How is Unity (U) using the proceeds from its 2030 convertible notes offering?

Unity plans to use $38.6 million for capped call transactions and the remaining proceeds to repurchase approximately $644.3 million of its 2026 Notes for about $600 million.

When will Unity's (U) 2030 convertible notes mature?

Unity's 0% Convertible Senior Notes will mature on March 15, 2030, unless earlier converted, redeemed, or repurchased.

What measures is Unity (U) taking to limit shareholder dilution from the convertible notes?

Unity entered into capped call transactions that are expected to reduce potential dilution to common stock upon conversion of the notes and/or offset cash payments required beyond the principal amount.

When can Unity (U) redeem the 2030 convertible notes?

Unity may redeem the notes for cash on or after March 20, 2028, if its stock price has been at least 130% of the conversion price for at least 20 trading days during any 30 consecutive trading day period.