A darling of a tech stock last week, DigitalOcean (DOCN -10.62%) was looking rather wet on Monday. On news that the company is to launch a new round of capital raising, investors eagerly traded out of the cloud computing specialist's equity to leave it with an almost 11% loss on the day. Other stocks fared much better, as the S&P 500 index only dipped by 0.3%.
An important note about notes
Before market open, DigitalOcean announced that it aims to float a $500 million issue of convertible senior notes. These securities mature on Aug. 15, 2030, if not converted, and the initial purchasers will have an option to collectively buy another $75 million aggregate principal of the notes within a period of 13 days from issue.
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As convertible securities, the notes will accrue interest that is to be paid semiannually, although the company did not specify a rate. If converted, it will swap shares of its common stock or cash, as applicable. And after Aug. 15, 2028, the notes will be redeemable, fully or partly, at the company's option at any time up to 40 trading days before that 2030 maturity date.
In the press release trumpeting the issue, the company said it intends to use its share of the proceeds -- combined with as much as $500 million from a credit facility -- to repurchase existing convertible senior notes due to mature in 2026, and for transactions related to them.
Financial impact incoming
No matter if all, some, or none of the notes are converted into shares, this issue will affect DigitalOcean's financials. If unconverted, the notes will add considerably to a debt pile that already approached $1.8 billion as of the end of June. If converted, they would at least be moderately dilutive to the outstanding share count, which currently stands at slightly over 91 million.
