What happened

Shares of SMART Global Holdings (SGH 1.78%), a manufacturer of memory and computing products, dropped 11% as of 1:00 p.m. EST on Friday. The drop was in response to an announcement about the pricing of an upsized convertible notes offering and an analyst downgrade.  

So what

Here are the key details of the convertible notes offering:

  • SMART sold $220 million in convertible senior notes that mature in 2026. That's $20 million more than the previously announced offering size. The initial purchasers have also been granted an option to purchase up to an additional $30 million in notes.
  • The notes will accrue interest at a rate of 2.25% per year and can be converted into ordinary shares at a price of about $40.61 per share. That represents a premium of about 27.5% over Thursday's closing price.
  • The deal is expected to net SMART about $213 million, or about $242.1 million if the purchasers fully exercise their option.
  • The vast majority of the proceeds will be used to repay all outstanding principal balances of its term loans.
  • SMART has also entered into a "capped call" transaction that is intended to limit the potential dilution of the deal. The cap price of the transactions will initially be $54.145 per share.
Businessman near computer thinking hard

Image source: Getty Images.

In other news, Suji Desilva, an analyst at Roth Capital, downgraded SMART from "buy" to "neutral" today. The combination of the notes offering and the analyst downgrade are weighing on today's share price. 

Now what

It is common for growth companies to raise capital with convertible notes offerings, so it is hard to say why traders are reacting so negatively to the pricing details. 

Long-term investors should shrug off today's price action and keep their focus on SMART's long-term profit potential. If the company can deliver on its goals, the share price will ultimately take care of itself.