UGI Corporation Prices Upsized $610.0 Million Convertible Senior Notes Offering
UGI has announced the pricing of a $610 million offering of 5% convertible senior notes due 2028, an increase from the initially planned $600 million. These notes are being offered privately to qualified institutional buyers under Rule 144A. The sale is expected to close on June 11, 2024, with an additional option for purchasers to buy up to $90 million more notes within 13 days. These senior unsecured obligations will accrue interest semi-annually and mature on June 1, 2028. The initial conversion rate is 36.2319 shares per $1,000 principal, with an approximate conversion price of $27.60 per share. UGI plans to use the $593 million net proceeds to refinance existing debt and for general corporate purposes. The notes and any shares issued upon conversion will not be registered under the Securities Act.
- UGI is raising $610 million, increased from the planned $600 million.
- Net proceeds estimated at $593 million, or $680.9 million if options are fully exercised.
- Notes carry a 5% annual interest rate, offering a stable yield for investors.
- Initial conversion price of $27.60 per share represents a 20% premium over last reported price.
- Funds will be used to refinance existing debt, potentially lowering interest expenses.
- Notes are senior unsecured obligations, posing a higher risk compared to secured debt.
- Conversion of notes to shares could dilute existing shareholder value.
- Notes will not be redeemable before maturity, limiting UGI's flexibility.
- Offering and shares are not registered under the Securities Act, restricting their resale.
Insights
The issuance of $610 million in convertible senior notes by UGI Corporation is a significant financial move. The proceeds will be used to refinance existing debt and for general corporate purposes, which is a positive sign of financial management. Convertible notes are attractive to investors because they offer the potential for conversion into equity, which can be beneficial if the company's stock performs well. The initial conversion rate of 36.2319 shares per $1,000 principal amount equates to a conversion price of approximately $27.60 per share, reflecting a 20% premium over the current stock price. This suggests that investors are optimistic about UGI's future performance.
In the short term, this could provide a boost to the stock price due to increased investor confidence. In the long-term, the company will need to ensure its stock price remains above the conversion price to avoid the dilution of shares. If UGI's stock does not perform well, the company might face pressure when the notes become due or are converted. The 5.00% interest rate is relatively moderate, reflecting the balance between risk and reward that the market perceives in UGI.
From a market perspective, the issuance of convertible notes is a strategic move to manage debt and leverage UGI's strong market position. The market generally views convertible notes positively because they offer debt holders the option to convert to equity, thus aligning their interests with equity holders. The fact that the offering was upsized from $600 million to $610 million indicates strong demand from institutional investors. This demand might suggest that the market has confidence in UGI’s strategic direction and its ability to perform well in the coming years.
However, potential investors should be cautious about the terms, particularly the conversion conditions and the specific events that trigger conversion rights before March 2028. If these conditions are too restrictive, they might limit the attractiveness of conversion and could impact long-term investor behavior. The adjustment mechanisms for the conversion rate and price ensure that investors are protected against certain corporate actions, which is standard in such financial instruments.
The legal framework underpinning the issuance of these notes includes several safeguards for both UGI and its investors. The notes are issued under Rule 144A, allowing for a private offering to qualified institutional buyers. This can expedite the process and reduce regulatory burdens compared to a public offering. The inclusion of provisions such as repurchase rights upon a 'fundamental change' and adjustments to the conversion rate and price ensures that noteholders have protective measures in place. These are important in managing potential risks associated with the offering and maintaining investor confidence.
Additionally, the legal stipulations around the non-redemption of the notes before maturity provide stability and predictability to investors, while the limitations on offering and selling the notes under certain jurisdictions protect UGI from potential legal complications. The legal structure of this financial instrument thus balances flexibility and protection for UGI and its investors.
The notes will be senior, unsecured obligations of UGI and will accrue interest at a rate of
The notes will not be redeemable at UGI’s election before maturity.
If a “fundamental change” (as defined in the indenture for the notes) occurs, then, subject to a limited exception, noteholders may require UGI 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, if any, to, but excluding, the applicable repurchase date.
UGI estimates that the net proceeds from the offering will be approximately
The offer and sale of the notes and any shares of common stock issuable upon conversion of the notes have not been, and will not be, registered under the Securities Act or any other securities laws, and the notes and any such shares cannot be offered or sold except 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 constitute an offer to sell, or the solicitation of an offer to buy, the notes or any shares of common stock issuable upon conversion of the notes, nor will there be any sale of the notes or any such shares, in any state or other jurisdiction in which such offer, sale or solicitation would be unlawful.
About UGI Corporation
UGI Corporation (NYSE: UGI) is a distributor and marketer of energy products and services in the US and
Forward-Looking Statements
This press release includes forward-looking statements, including statements regarding the completion of the offering and the expected amount and intended use of the net proceeds. Forward-looking statements represent UGI’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. Among those risks and uncertainties are market conditions, the satisfaction of the closing conditions related to the offering and risks relating to UGI’s business, including those described in periodic reports that UGI files from time to time with the SEC. UGI may not consummate the offering described in this press release and, if the offering is consummated, cannot provide any assurances regarding its ability to effectively apply the net proceeds as described above. The forward-looking statements included in this press release speak only as of the date of this press release, and UGI 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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Investor Relations
610-337-1000
Tameka Morris, ext. 6297
Arnab Mukherjee, ext. 7498
Source: UGI Corporation
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