What happened

Shares of Infinera (NASDAQ:INFN) closed 10.2% lower on Thursday. The maker of telecom-grade systems for optical networking is preparing to take on a substantial amount of new debt.

So what

After the closing bell on Wednesday, Infinera announced that it will sell $275 million of convertible senior notes, giving the underwriters an option to purchase another $41.3 million of notes if they so desire. The cash raised from this offering will largely be used to finance the recently announced $430 million buyout of fellow optical networking expert Coriant.

Dozens of Ethernet and fiber-optic network cables plugged into a router rack.

Image source: Getty Images.

Now what

Investors have been aware of the Coriant deal since July 23, but the financing details behind that buyout were never terribly clear. On the deal announcement, Infinera simply said this it would cover some of the cash costs through a simple loan and was "exploring various longer-term financing options" to handle the rest.

Now we know that Infinera is going with an unsecured senior notes structure, due for maturation in 2024. An included capped call framework is intended to reduce the dilution for existing shareholders in case some or all of the notes are converted into new Infinera shares. The full $275 million debt infusion amounts to roughly 21% of Infinera's market cap as of Wednesday. Today's price drop amounts to investors bracing for a partial conversion into new shares -- an option that hadn't been explicitly introduced until last night.

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