JWCA advises Semtech on the equitization of ~$188mm of its convertible notes

July 2024 | read press release

Transaction Background

Following its recent equity appreciation, Semtech Corporation (“SMTC” or “the Company”) equitized ~$188mm (~75%) of the $250mm 4.00% convertible notes due 2028, leaving ~$62mm outstanding. SMTC stock is up ~19% in the past month and ~85% in the past 6 months. The high stock price allowed the Company to efficiently equitize the bonds, allowing the Company to reduce its outstanding debt balance.

Semtech’s objectives included:

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

• Use stock as the consideration to preserve cash

• Minimize transaction and friction costs; execute as efficiently as possible

• Minimize market and stock price risk

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

• Evaluating tactics around investor targeting, timing and execution method

• Balancing exchange considerations to minimize equitization price and friction costs

• Investor outreach, negotiation, and execution of exchanges

Results

The Company de-levered by delivering shares of its stock to retire the convertible:

• Exchanged ~$188mm of 2028 convertible notes for stock (~75% of outstanding)

• Saved an estimated ~$7.5mm cash interest expense over the remaining life of the retired bonds

• Minimal transaction cost: the value delivered to investors represented a very modest premium to the bond trading price

• Minimal stock selling: the majority of the shares delivered to investors are returned to the share lenders

• Confidential execution: the transaction was negotiated privately with a small group of holders, and the Company knew the economic terms before executing the transaction