HubSpot (HUBS): Offering Of $400 Million In Convertible Senior Notes

By Amit Chowdhry ● June 2, 2020
  • HubSpot Inc (NYSE: HUBS) has announced the pricing of $400 million aggregate principal amount of Convertible Senior Notes due 2025 in a private offering to persons reasonably believed to be qualified institutional buyers

HubSpot Inc (NYSE: HUBS) has announced the pricing of $400 million aggregate principal amount of Convertible Senior Notes due 2025 in a private offering to persons reasonably believed to be qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933 as amended.

What does HubSpot do? HubSpot is known as a leading growth platform. And since 2006, HubSpot has been on a mission to make the world more inbound. Now there are over 78,700 total customers in more than 120 countries using HubSpot’s software, services, and support to transform the way they attract and engage customers. The company’s products include Marketing Hub, Sales Hub, Service Hub, CMS Hub, and a powerful free CRM.

HubSpot also granted the initial purchasers of the notes an option to purchase up to an additional $60 million aggregate principal amount of notes. The sale of the notes to the initial purchasers is expected to settle on June 4, 2020, subject to customary closing conditions. And it is expected to result in approximately $391.3 million (or approximately $450.1 million if the initial purchasers exercise their option to purchase additional notes in full) in net proceeds to HubSpot after deducting the initial purchasers’ discount and estimated offering expenses payable by HubSpot.

These notes will be senior unsecured obligations of HubSpot. And the notes will bear interest at a rate of 0.375% per year, payable semi-annually in arrears on June 1 and December 1 of each year, starting on December 1, 2020.

The notes are going to mature on June 1, 2025, unless earlier repurchased, redeemed, or converted. And HubSpot may not redeem the notes prior to June 5, 2023.

HubSpot may redeem for cash all or any portion of the notes (at its option) on or after June 5, 2023, and on or prior to the 31st scheduled trading day immediately preceding the maturity date (if the last reported sale price of HubSpot’s common stock has been at least 130% of the conversion price then in effect for at least 20 consecutive or non-consecutive trading days, including the trading day immediately preceding the date on which HubSpot provides notice of redemption, during any 30 consecutive trading day period ending on, and including the trading day immediately preceding the date on which HubSpot provides notice of redemption at a redemption price equal to 100% of the principal amount of the notes to be redeemed, plus accrued, and unpaid interest to but excluding the redemption date.

These notes will be convertible at an initial conversion rate of 3.5396 shares of HubSpot’s common stock per $1,000 principal amount of notes (equivalent to an initial conversion price of approximately $282.52 per share, which represents a conversion premium of approximately 32.5% to the last reported sale price of $213.22 per share of HubSpot’s common stock on The New York Stock Exchange on June 1, 2020).

Before the close of business on the business day immediately preceding March 1, 2025, the notes will be convertible at the option of the noteholders only upon the satisfaction of specified conditions and during certain periods. On or after March 1, 2025 until the close of business on the second scheduled trading day preceding the maturity date, the notes will be convertible at the option of the noteholders at any time regardless of these conditions. And conversions of the notes will be settled in cash, shares of HubSpot’s common stock, or a combination thereof at HubSpot’s election.

HubSpot plans to use $44 million of the needs proceeds from the offering of notes to pay the cost of the capped call transactions.  And if the initial purchasers exercise their option to purchase additional notes, HubSpot expects to use a portion of the net proceeds from the sale of the additional notes to enter into additional capped call transactions with the option counterparties.

And HubSpot intends to use about $283 million of the net proceeds from the offering of notes to fund the cash portion of the consideration used to finance the exchanges of approximately $272.1 million of HubSpot’s 0.25% Convertible Senior Notes due 2022. Plus the remainder of the net proceeds for working capital and other general corporate purposes — which may include potential acquisitions and strategic transactions.

HubSpot may also evaluate potential acquisitions and strategic transactions of businesses, technologies, or products. But HubSpot has not designated any specific uses and has no current agreements with respect to any material acquisition or strategic transaction. Those intentions are subject to change.