Matthews South

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October 11, 2023
$350 million + $52.5 million Shoe
Maturity: 5 Years
Execution Structure: 1-Day Public Marketing
Structure: Provisional Call with Make-Whole in Year 3
Coupon: 1.50% (1.25-1.75% Marketing Range)
Premium: 27.5% (27.5-32.5% Marketing Range)
Capped Call Strike: Up 100% / $42.90
2025 Notional Repurchased: 80% / $230mm
Concurrent Stock Repurchase: $50mm
Matthews South Role: Financial Advisor
Active Bookrunners: JPMorgan / Goldman Sachs / Morgan Stanley / BofA

$350 million Convertible + Capped Call

Transaction and Process Overview

  • Structuring
    • Matthews South designed this multi-step transaction to help PagerDuty achieve its capital structure objectives which included 1) Refinance its 2025 convertible, 2) Purchase a capped call to minimize potential dilution, 3) Repurchase stock to return value to shareholders and reduce stock sales during marketing, and 4) Put additional proceeds on the balance to enhance flexibility
    • We helped the company navigate multiple work streams, focusing on optimal structuring, syndicate selection, documentation, accounting / tax implications, pricing and execution of the transaction
  • Call Spread Process
    • Our proprietary software allowed us to conduct an extensive auction and synthesize the results quickly
    • Auction included 15+ banks who provided bids on multiple allocations and multiple price points, ultimately allowing the company to optimize pricing and achieve an effective conversion premium of 100% (no dilution until stock more than doubles)
  • Marketing and Pricing
    • The company achieved a 1.50% coupon, which represents only a 25 bps increase to the coupon on its convertible issued in 2020 (Fed Funds rate has increased 5+% since then)
    • PagerDuty was able to term out 80% of its 2025 convertible and put cash on the balance sheet, creating much desired flexibility
    • The concurrent stock repurchase reduced potential investor market hedging during marketing. Stock closed down a modest 1.7%