Snap eyes US$750m convertible bond offering in 'strategic move'

[NEW YORK] Snap launched a US$750 million convertible offering Thursday morning in what was characterised as a "strategic move" by company co-founder and chief executive officer Evan Spiegel.

That's the second set of bonds with an embedded stock option issued in the past year, echoing its US$1 billion-plus capital raise via convertible paper in August.

"This is a strategic, opportunistic capital raise to help us continue achieving our vision for the long term," reads an internal memo from Mr Spiegel obtained by Bloomberg. The memo also references Snap's plans to shore up its talent, and a continued focus on developing augmented reality, content and gaming platforms.

Goldman Sachs Group and JPMorgan Chase have been tapped for the proposed private offering, according to people familiar with the situation. The banks were also involved with Snap's previous convertible offering and its initial public offering.

The company behind social media platform Snapchat posted an earnings beat Wednesday and touted its accelerating app usage amid stay-at-home mandates. Shares closed 37 per cent higher but gave back some of those gains Thursday despite the broader market's climb.

In the memo, Mr Spiegel also indicated that timing around the issuance was opportunistic given the terms companies have been able to fetch lately. The getting has indeed been good, attracting all manner of companies to convertibles including Carnival, Burlington Stores, and Dick's Sporting Goods in the last few weeks.

Where Snap's convertible issuance ultimately prices will signal how strong the market continues to be. For context, its August convertible due in 2026 fetched a coupon of 0.75 per cent and an initial conversion price - the level at which the bond can be converted into common shares - of US$22.81, roughly 40 per cent higher than where shares were trading then. But those were pre-pandemic terms.

The new notes mature May 2025, and Mr Spiegel indicated in the internal memo that Snap could, at a later date, choose to call the notes and pay in cash or stock. The interesting wrinkle in Snap's convertible, which diverges from many freshly issued notes lately, is the use of a hedging tool known as a capped call transaction, aimed at pushing off dilution. That the company would deploy cash upfront in such a manner would suggest management is bullish on shares.

BLOOMBERG