CyberArk, a provider of cybersecurity solutions for enterprises, announced a $500 million issue of 0% Convertible Senior Notes due 2024 to investment institutions late last week. The notes, which bear zero interest, are scheduled for repayment in November 2024. The volume of the offering is likely to increase by $75 million through a thirteen-day option granted to the participants in the issue.
In effect, the issue of convertible notes at 0% interest is a capital deal with an option for future conversion of the notes to shares. The noteholders have protection against a downside, because if the share price does not increase to more than the conversion price, they can receive the amount of the debt at the end of the period. The notes will be convertible at a price of $157.53 per share, amounting to a 37.5% premium on CyberArk's share price before the offering was carried out. At the same time, only a few months ago, CyberArk's share reached a price nearly equal to the conversion price. The share reached a peak of $147, but then receded, dropping to $113 on Nasdaq.
CyberArk, founded and managed by chairman and CEO Udi Mokady, provides solutions for monitoring, managing, and securing privileged access to enterprise computer systems. Its market cap is $4.3 billion.
In order to effectively increase the conversion price, thereby reducing the dilution of its existing shareholders' stakes, CyberArk entered into capped call transactions that also include call options. Following these transactions, the conversion price rises to $229.14, a 100% premium on the share price before the offeringe, subject to certain adjustments in the capped call transactions. This cost of these transactions will amount to $46.7 million.
Israeli company Wix employed similar tactics when it raised $400 million in a convertible notes offering last year at 0% interest. Cybersecurity company Palo Alto Networks also held a $1.5 billion convertible notes offering, although the annual interest rate in this issue was 0.75%.
In effect, the technology companies doing this are taking advantage of the possibility of raising financing by utilizing the low interest rate without immediately diluting the stakes of their shareholders. Such dilution would have resulted had these companies raised money through an equity offering.
CyberArk stated that the net size of its offering would be $487 million, or $560 million if the option to increase the offeringe is exercised.
Published by Globes, Israel business news - en.globes.co.il - on November 17, 2019
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