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JWCA aDVISES Chegg inc. on its upsized $1 billion convertible and capped call, CONVERTIBLe repurchase and capped call unwind

AUgust 2020 | read press release

Transaction Background

Chegg Inc. successfully raised $1,000mm (inclusive of greenshoe) in the convertible market (upsized by 20%) at highly attractive terms (0.00% coupon and 37.5% conversion premium)

Chegg engaged J. Wood Capital Advisors to assist in the structuring, negotiation, documentation and execution of its transaction

JWCA provided extensive analysis for Chegg on deal structuring and related items, including:

  • Convertible structuring: redemption options and implications on overall economics

  • Derivative overlay: tax-integrated vs freestanding capped call

  • Accounting and tax analysis/implications

  • Convertible and capped call documentation to ensure maximum value and future efficiency/flexibility for the company

  • Syndicate structure and precedent data

  • Convertible repurchase analysis and considerations

  • Existing capped call unwind dynamics and analysis

  • Advice on timing and when to go to market

JWCA designed and ran a capped call auction process to achieve competitive terms

JWCA led the negotiation to unwind the existing capped call at Company-favorable terms

JWCA provided advice, support and analysis throughout the negotiation and execution

Results

Chegg’s convertible issuance was very well-received by investors

  •  The 0.00% coupon and 37.5% conversion premium represented the company-friendly end of the coupon and conversion premium ranges

  • Chegg was able to achieve the first ever zero-coupon for a 6-year maturity

  • Due to strong investor demand, the deal was upsized 20% from $750mm launch size

Chegg extinguished $172mm of its existing $345mm 0.25% convertible notes due 2023 simultaneously with the offering at attractive pricing, paying par in cash and upside in shares

Chegg’s stock price was only down -1.9% on pricing day despite raising nearly 10% of the Company’s market cap (compared to an average stock price decline of –2.9% for +$500mm technology convertibles issued since Q2 2020)

Capped call documentation and auction process produced meaningful savings for Chegg, while maximizing flexibility for the Company