Cloudflare plans to raise $2.175 billion through convertible senior notes due 2031 in a private placement to qualified institutional buyers. The offering includes an option for an additional $325 million in notes and capped call transactions to offset potential dilution.
Cloudflare Inc. plans to raise $2.175 billion through convertible senior notes due 2031 in a private placement to qualified institutional buyers, the cybersecurity company said Monday.
The notes will be senior, unsecured obligations bearing semi-annual interest and maturing Aug. 15, 2031, unless earlier redeemed, repurchased or converted, according to a company statement. Initial purchasers will receive an option to buy up to an additional $325 million in notes within 13 days of issuance, which would bring the total deal to $2.5 billion if fully exercised. The interest rate and conversion rate will be determined at pricing.
Cloudflare expects to enter into capped call transactions with the initial purchasers and other financial institutions to offset potential dilution from note conversions. The cap price will initially represent a premium of at least 150 percent over the last reported sale price of Cloudflare's Class A common stock on the New York Stock Exchange on the pricing date. The notes will be convertible into cash, shares of Class A common stock, or a combination thereof, at the company's election.
The company will use a portion of the net proceeds to pay for the capped call transactions, with the remainder allocated to general corporate purposes including working capital, capital expenditures, repayment of outstanding indebtedness, and potential acquisitions and strategic transactions. The offering will be conducted under Rule 144A of the Securities Act of 1933, meaning the notes and any shares issuable upon conversion have not been registered with the SEC.
Cloudflare, which competes with Akamai Technologies and Fastly in the content delivery and edge computing market, reported second-quarter results last month. The company has been expanding its AI-focused product suite, including an AEO visibility dashboard launched this month that shows brands whether AI assistants recommend them. Option counterparties may purchase Class A common stock or enter into derivative transactions to hedge the capped call transactions, which could affect the stock price and the trading price of the notes.
The offering represents one of the largest convertible debt raises by a cybersecurity company this year. If fully subscribed including the greenshoe option, the deal would total $2.5 billion. The notes are expected to be priced in the coming days, with the company's stock likely to face near-term pressure from dilution concerns as investors weigh the growth investments the proceeds could fund.
This article is for informational purposes only and does not constitute investment advice.
