JWCA advises splunk on its $1,265 million convertible bond and capped call offering, and simultaneous repurchase

June 2020 | read press release

Transaction Background

Splunk successfully raised $1,265mm in the convertible market (upsized by 22% from $900mm launch size) at very attractive terms (1.125% coupon and 35% conversion premium)

Notwithstanding the continued elevated market volatility amidst an ongoing global health crisis, Splunk took advantage of the all-time high in its stock price to successfully execute its convertible issuance and capped call purchase

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

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

• Convertible structuring

• Accounting and tax analysis/implications

• Repurchase of existing convertible implications

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

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

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

Results

Splunk’s convertible issuance was very well-received by investors, despite a challenging macro environment:   

• The 1.125% coupon and 35% conversion premium represented the midpoint of the marketed coupon and conversion premium ranges

• Repurchased $488mm of existing bonds (39%)

• Splunk’s stock price increased 1.1% on pricing day (compared to an average stock price decline of -3.7%  for U.S. technology convertibles 2019-2020ytd)

The capped call raised the effective conversion price to 100% above the stock price at issue, mitigating dilution for Splunk at a very reasonable cost

Splunk also repurchased $488mm of its Convertible Notes due 2023 at company-friendly terms

Capped call documentation and auction process produced meaningful savings for Splunk, while mitigating future downside scenarios