Snowflake Inc. (SNOW) is making headlines this Wednesday as the company announced the pricing of a hefty $2 billion in convertible senior notes. The issuance is divided into two parts: $1 billion in 0% Convertible Senior Notes due 2027 and another $1 billion in 0% Convertible Senior Notes due 2029. This private placement is targeted towards qualified institutional buyers.
To sweeten the deal, Snowflake also granted the initial purchasers of these notes options to acquire additional notes within a 13-day window. This could potentially boost the total principal amount of the 2027 notes by an extra $150 million and the 2029 notes by another $150 million. The sale is expected to finalize on September 27, 2024, subject to customary conditions.
Here’s a breakdown of the notes’ key features:
*
Maturity:
The 2027 notes mature on October 1, 2027, while the 2029 notes mature on October 1, 2029, unless converted, redeemed, or repurchased before those dates.*
Conversion:
The notes are convertible at the holder’s discretion under specific conditions. Snowflake can settle these conversions in cash, stock, or a combination of both.*
Initial Conversion Rate:
Both the 2027 and 2029 notes have an initial conversion rate of 6.3492 shares per $1,000 principal, which translates to $157.50 per share. This represents a 40% premium compared to the stock price as of September 24, 2024. Importantly, this rate can be adjusted to account for anti-dilution events.Snowflake anticipates net proceeds of approximately $1.97 billion from this offering. This figure could reach $2.27 billion if the initial purchasers fully exercise their options, after deducting discounts, commissions, and estimated expenses.
The company has outlined its plans for these funds:
*
Capped Call Transactions:
A portion of the proceeds will cover the cost of capped call transactions.*
Stock Repurchase:
Snowflake intends to repurchase approximately $400 million worth of its Class A common stock from note purchasers.*
General Corporate Purposes:
The remaining funds will be allocated to general corporate needs, which could include areas like research and development, acquisitions, or expansion.Snowflake’s cash reserves were a substantial $3.2 billion at the end of the second quarter. Investors interested in gaining exposure to Snowflake stock can explore options like the Advisor Managed Portfolios Trenchless Fund ETF (RVER) and ProShares Big Data Refiners ETF (DAT).
As of the last check on Wednesday, SNOW shares were down 0.24% at $112.23 in premarket trading. This move indicates that the market is cautiously observing the implications of this significant fundraising effort.
The issuance of these convertible notes is a testament to Snowflake’s financial strength and its confidence in its future growth. While the market reaction remains to be seen, this move reinforces Snowflake’s position as a key player in the cloud data warehousing space.
