EB - Should Investors Fret Over Square's $1 Billion Debt Offering?
Square's (NYSE: SQ) stock recently dipped after the online payments company announced an offering of $1 billion in 0.125% convertible senior notes due in 2025. The notes will be sold in a private placement to qualified institutional buyers, and initial buyers will gain a 30-day option to purchase an additional $150 million in notes to cover over-allotments. The notes can be converted to cash, to shares of Square's Class A common stock, or a combination of both.
After deducting the initial purchasers' discount and estimated offering expenses, Square expects to generate $984.9 million in net proceeds (or $1.13 billion if the over-allotment is fully exercised) from the sale. It plans to spend $49.7 million of the proceeds on transaction costs, and the rest for "general corporate purposes."
It isn't surprising to see Square take on more debt since it's still aggressively expanding. However, Square also reduced its first-quarter and full-year guidance to reflect those costs -- so should investors be concerned?