JWCA advises KBR on the repurchase of $100mm convertible notes for cash and concurrent unwind of call spread
June 2023 | read press release
Transaction Background
In June 2023, JWCA advised KBR (the “Company”) on the repurchase of $100mm of its 2023 convertible. KBR had a deep in-the-money convertible that was trading below it's underlying conversion value + remaining coupons.
KBR’s objectives included:
Extinguish a portion of the convertible prior to the upcoming maturity using all cash, with no premium paid to the underlying share value
Avoid a longer observation period at maturity
Unwind the call spread for fair value simultaneously as opposed to a mismatched call spread maturity (the warrant matures 3 months after the bond hedge)
Minimize transaction and friction costs: execute as efficiently as possible
JWCA acted as Repurchase Agent for the transaction and provided analysis and advice around:
Investor outreach, negotiation, and observation period structure of full transaction
Assisted the Company with the analysis of convertible economics, pricing dynamics, and accounting
Managed call spread unwind negotiation
Results
The Company executed a successful liability management transaction for its 2.50% convertible notes due 2023:
Repurchased $100mm of their convertible notes (~29% of outstanding) for cash
Saved the Company over $1mm by repurchasing the convertible for the value of the underlying shares, with no friction cost from the conversion option or additional interest required
Avoided a long observation period at maturity and made for efficient execution and market risk
Call spread unwind negotiations produced meaningful savings for the Company
Successfully amended the remaining warrants to add feature to cash settle at Company’s election