Stock in DigitalOcean plummeted by nearly 11% today.
DigitalOcean, the cloud infrastructure provider, has announced its intention to issue $500 million of convertible senior notes. These notes, which will mature on Aug. 15, 2030, unless converted earlier, are convertible securities, meaning they can be exchanged for shares or cash if converted.
If the notes are not converted, they will contribute significantly to DigitalOcean's existing debt, which was approximately $1.8 billion as of the end of June. The company's stock had an almost 11% loss on Monday due to the news of the capital raising.
The search results do not provide specific information on which banks will conduct the initial public offering (IPO) of DigitalOcean if securities worth $500 million are issued.
After Aug. 15, 2028, DigitalOcean has the option to redeem the notes, fully or partially, at any time up to 40 trading days before the maturity date. The proceeds from the notes issue, along with up to $500 million from a credit facility, will be used by DigitalOcean for repurchasing existing convertible senior notes due in 2026 and related transactions.
While the notes will accrue interest, the rate was not specified in the announcement. If the notes are converted, they will be exchanged for shares of DigitalOcean's common stock or cash. The initial purchasers have an option to buy an additional $75 million of notes within 13 days of issue.
It's important to note that if the notes are converted, they will have a moderately dilutive effect on the outstanding share count, which is currently slightly over 91 million. The notes do not specify a rate for the semiannual interest payments.
Interestingly, while DigitalOcean's stock performed poorly, the S&P 500 index only dipped by 0.3%. This suggests that the market's reaction to DigitalOcean's capital raising may be specific to the company's circumstances rather than a broader market trend.
This news marks a significant move for DigitalOcean as it seeks to manage its debt and financial position. As more details emerge, investors and stakeholders will be closely watching the company's strategy and its impact on the company's future.
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