Snowflake (NYSE:SNOW) shares fell 4% on Monday after the enterprise software company announced plans to raise $3.5 billion through a private offering of convertible senior notes.
The offering consists of $1.3 billion of convertible notes due in October 2029 and $2.2 billion of notes due in October 2031. The securities will be offered to qualified institutional buyers.
Snowflake has also granted the initial purchasers an option to buy up to an additional $500 million of notes within a 13-day period.
Neither tranche carries regular interest, according to the company.
Snowflake Plans to Repurchase Existing 2027 Notes
Snowflake intends to use a portion of the proceeds from the offering to repurchase part of its outstanding 0.00% convertible senior notes due in 2027.
The transaction would replace some of the company’s existing 2027 obligations with securities carrying later maturity dates.
Snowflake said the remaining proceeds would be available for general corporate purposes, which could include share repurchases and potential acquisitions.
Capped Call Transactions Form Part of Financing
In connection with the convertible note offering, Snowflake plans to enter into privately negotiated capped call transactions with financial institutions.
The transactions are intended to reduce potential dilution to Snowflake’s common shares if the notes are converted and the company’s share price exceeds specified levels.
Upon conversion of the notes, Snowflake will have the option to settle its obligations in cash, shares or a combination of the two.
The eventual impact on the number of Snowflake shares outstanding will therefore depend in part on whether the notes are converted and how the company chooses to settle any conversions.
Shares Decline Following Financing Announcement
Snowflake shares declined following the announcement of the financing.
Convertible securities can result in additional shares being issued if they are converted into equity, although Snowflake’s planned capped call transactions are intended to offset some potential dilution under specified conditions.
The $3.5 billion offering, excluding any exercise of the additional $500 million purchase option, will also provide Snowflake with funds that can be used to refinance part of its existing convertible debt and for other corporate purposes.
Snowflake stock price
