Key Moments
- Axon Enterprise, Inc. (NASDAQ:AXON) shares declined 5% after announcing a $1.0 billion 0% convertible senior notes offering due 2031.
- The company may issue up to an additional $150.0 million in notes via an underwriters’ over-allotment option.
- Axon plans to use part of the proceeds for capped call transactions and the remainder for general corporate purposes.
Convertible Notes Deal Pressures Axon Stock
Investing.com — Shares of Axon Enterprise, Inc. (NASDAQ:AXON) fell 5% on Tuesday after the public safety technology company disclosed a new convertible debt financing plan totaling $1.0 billion in principal amount.
The securities will be issued as 0% convertible senior notes maturing in 2031, adding a significant new layer to the company’s capital structure and drawing immediate attention from equity and credit investors.
Key Terms of the 0% Convertible Senior Notes
Axon stated that the notes will be offered through a public transaction registered under the Securities Act of 1933. In addition, the company expects to provide the underwriters with an option to purchase up to an extra $150.0 million of notes to address any over-allotments.
The notes are scheduled to mature on September 15, 2031, unless they are converted, redeemed, or repurchased earlier. They will represent senior, unsecured obligations of Axon and will not accrue regular interest over their life.
On conversion, Axon has flexibility in how it settles: the company may choose to satisfy its obligations in cash, in shares of its common stock, or through a combination of both, at its own discretion.
| Feature | Detail |
|---|---|
| Issuer | Axon Enterprise, Inc. (NASDAQ:AXON) |
| Principal Amount | $1.0 billion |
| Additional Option | Up to $150.0 million for over-allotments |
| Interest Rate | 0% |
| Maturity Date | September 15, 2031 |
| Ranking | Senior, unsecured |
| Settlement on Conversion | Cash, common stock, or a combination, at Axon’s election |
Planned Use of Proceeds and Capped Call Structure
Axon indicated that a portion of the net proceeds will be allocated to capped call transactions. These derivative arrangements are designed to address equity dilution risk associated with potential future conversions of the notes.
The company said it plans to deploy the remaining funds for general corporate purposes. That may include providing capital to support growth as well as acquiring or investing in product lines, products, services, or technologies.
Underwriting Syndicate and Capped Call Transactions
Goldman Sachs & Co. LLC, Morgan Stanley & Co. LLC, J.P. Morgan Securities LLC, RBC Capital Markets, LLC and Citigroup Global Markets Inc. are serving as joint lead book-running managers for the offering.
In conjunction with the pricing of the notes, Axon expects to enter into privately negotiated capped call transactions with one or more of the underwriters and their affiliates. According to the company, these capped call arrangements are expected to help mitigate potential dilution of Axon’s common stock upon conversion of the notes.
Optional Redemption Terms
Axon also outlined a conditional redemption feature. Beginning on September 20, 2029, the company may redeem all or part of the outstanding notes for cash, provided a share price test is met. Specifically, the last reported sale price of Axon’s common stock must be at least 130% of the conversion price for at least 20 trading days during any 30 consecutive trading day period for the redemption right to become exercisable.
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