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Twitter Is Raising $600 Million in Debt

By Evan Niu, CFA - Dec 3, 2019 at 1:09PM

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The social media company is refilling its war chest.

Yesterday, Twitter ( TWTR -0.02% ) announced that it was raising $600 million in senior unsecured notes that will mature in 2027. The offering won't be available to public investors, with the notes being issued in a private placement to qualified institutional investors. Certain details around pricing and interest rates have not been determined yet.

Here's what investors need to know about the notes.

Interior of Twitter headquarters

Image source: Twitter.

Out with the old debt, in with the new debt

It may seem unnecessary for the tech company to issue paper, considering the fact that it has been consistently generating positive adjusted free cash flow for the past three years. Twitter has even been able to maintain a streak of posting GAAP profits, although the company missed expectations last quarter in part due to bugs in one of its ad products that impacted advertising revenue.

Twitter says it will use the proceeds from the offering for general corporate purchases, along with some other standard boilerplate language referencing capital expenditures, working capital, and acquisitions. The company clarifies that it does not currently have any major deals or strategic transactions pending.

Last quarter, a debt maturity took a bite out of Twitter's cash position. The company had issued $935 million in convertible senior notes back in 2014 that matured during the quarter, which is largely why its cash, cash equivalents, and short-term investments declined $870 million sequentially despite the company generating $166.5 million in adjusted free cash flow.

Twitter said in October that it had already lined up the cash to repay the 2014 notes, using proceeds from another bond offering from last year. "As planned, we retired approximately $935 million of convertible debt at maturity in September using cash on hand, having issued convertible notes in 2018 with net proceeds of approximately $1.1 billion to prefund this maturity," the company wrote in its shareholder letter.

The only other debt in Twitter's capital structure, before including this most recent offering, consists of $954 million in convertible notes due in 2021 and $1.15 billion in convertible notes due in 2024.

Filling up the war chest

CFO Ned Segal also suggested that Twitter just wanted to beef up its coffers in case of a rainy day. Recession fears have receded somewhat in recent months, but the global macroeconomic environment still remains uncertain due to trade tensions and Twitter might as well take advantage of low interest rates.

"When we think about uses of cash, we think about being able to run the business through any environment," Segal said on the October earnings call. "We think about and often challenge ourselves around the optimal use in terms of benefiting our shareholders."

Twitter also wants to keep some powder dry in case it decides to pull the trigger on any acquisitions. The company has made nine acquisitions so far in 2019.

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