Earlier this week, Snapchat parent Snap (NYSE:SNAP) announced a proposed private offering of convertible senior notes, looking to raise $750 million in fresh capital to strengthen its balance sheet. Companies across industries are trying to shore up their finances and prioritize liquidity amid the ongoing COVID-19 pandemic that is wreaking havoc on the global economy and creating unprecedented economic uncertainty.

It helps that Snap delivered a strong first-quarter earnings report, which showed impressive gains in daily active users (DAUs) as people spend more time online during the public health crisis. Snap added 11 million DAUs in the first quarter, bringing the total to a record 229 million. Investor confidence goes a long way when trying to raise cash.

Two hands holding smartphones displaying Snap friendships

Image source: Snap.

Getting more cash

Snap announced on Friday that the offering had been upsized to $850 million, indicative of healthy demand for the paper among institutional investors, while the investors also have options to purchase up to another $150 million of the notes. (The initial proposed offering had options for $112.5 million.) That means Snap could raise as much as $1 billion in gross proceeds through the deal, up from the prior maximum of $862.5 million.

Pricing and other pertinent terms were also finalized. The bonds will mature on May 1, 2025, and carry an interest rate of 0.25%. The initial conversion ratio will be 46.1233 Class A shares per note, which translates into an initial conversion price of $21.68 per share, or about 35% higher than where the stock closed on Thursday. The net proceeds from the transaction are expected to be around $840 million, or $989 million if the investors exercise their options.

In connection with the deal, Snap will enter into capped call transactions, which is a common strategy that companies issuing convertible notes use in order to mitigate the potential dilutive effects if the notes are converted. Those transactions will cost an estimated $85 million, which will come out of the net proceeds.

Getting better with cash

The cash will add to the $2.1 billion that Snap finished the first quarter with. Additionally, the tech company also has another $1.1 billion available through a revolver, which was undrawn as of the end of the quarter.

Perhaps more importantly, Snap has made meaningful progress in reducing its cash burn. Free cash flow was just negative $5 million last quarter, and operating cash flow was positive for the first time in Snap's history, CFO Derek Anderson noted on the call with analysts.

SNAP Cash from Operations (Quarterly) Chart

SNAP Cash from Operations (Quarterly) data by YCharts.

Much uncertainty remains as the world continues to grapple with COVID-19 -- Snap declined to provide guidance for the second quarter due to the precariousness of the public health situation -- but the company is on solid financial footing to ride out the storm.