JWCA advises AMERICAN EAGLE OUTFITTERS ON AN OVERNIGHT CONVERTIBLE EXCHANGE PAIRED WITH AN ACCELERATED SHARE REPURCHASE

JUNE 2022 | read press release

Transaction Background

Following the issuance of American Eagle Outfitters’ $425mm convertible in April 2020, AEO’s stock price increased ~80%. The high stock price presented an opportunity to retire a significant portion of the convertible early by delivering a mix of stock and cash overnight to avoid market risk, while limiting dilution with a concurrent accelerated share repurchase and capturing a discount to VWAP

American Eagle’s objectives included:

  • De-lever: retire the convertible to lower debt balance and interest expense

  • Offset immediate dilution from the convertible exchange

  • Repurchasing the convertible for cash would have required a substantial observation period, which was mitigated through an overnight exchange + concurrent ASR to also capture discount to VWAP

JWCA acted as Exchange Agent / Financial Advisor for the transaction and provided analysis and advice around:

  • Tactics around investor targeting and execution method

  • Balancing exchange considerations to minimize repurchase price and friction costs

  • Investor outreach, negotiation, and execution of exchanges

  • Accounting and tax analysis around the exchange of the existing convertible notes

Results

The Company executed a successful liability management transaction for its 3.75% convertible notes due 2025 and accelerated share repurchase::

  • Exchanged $342.4mm of their convertible notes (83% of outstanding) for a mix of common equity and cash

  • Repurchased ~17 million shares at a meaningful discount

  • No market risk for the Company on the exchange – the transaction was conducted confidentially and executed based on the closing stock price