SOFI'S Convertible Note (Parts 1 & 2)

Disclosure: The author owns securities in the referenced company or companies. This is not financial advice or a recommendation, and not a substitute for due diligence. 

On March 8, 2024, SoFi Technologies, Inc. (SOFI) closed on a previously announced private offering of $865.2M of convertible notes. A summary of the details below:

PART 1: DETAILS OF THE CONVERTIBLE NOTES

Rate: 1.25% Semi-annually Mar/Sept

Deal Stock Px: $7.27/share (implied ownership price of convertible note owners)

Period: Mar 2024 - Mar 15 2029

Make Whole Provision: Yes

Total Notional: $865.2M (the shoe option on the deal was fully exercised, details in the 8K linked below) 

Proceeds (Net): $845.3M

Use of Proceeds: 

• $78.8M will be used on capped calls (anti-dilution for a portion of the above conversion capped at $14.54).

• No other use constraints (aka support the growth of the loan book, pay back higher rate debt, working capital, infra build out, etc)

Conversion Detail

Terms: 105.8089 shares of SoFi’s common stock per $1,000 principal (or $9.45, 30% premium to deal)

First Conversion date: Sept 15, 2028

Early Redemption: Mar 2027

Conversion Requirement:  SOFI exceeds the conversion price by 30% during a period of 30 trading days (~1.5 months)  for at least 20 of those days (does not need to be consecutive).

Conversion Price (30% premium to conversion): $12.29

Settlement: Cash or stock

PART 2: CAPPED CALL TRANSACTION (completely separate action already paid for)

Price: $14.54 (100% upside)

Counterparty Note: The counterparties of the capped calls are NOT the same as those that own the convertible notes

OTHER: 

Total Shares from the Q: 1,065,944,831

Shares on this convertible note (Approx): 90M (aka meaningful)

Documentation: SOFI Form 8K Filed March 4, 2024

Includes details of a) the convertible notes, b) the related but separate capped call transaction and c) debt covenants.

Potential Impact on Stock

Here are my initial thoughts and where I would like help/clarification. The relevant details are above.

1) The rate on the convertible notes is 1.25%. That's fabulous if this thing does not convert.

2) If the bond converts this debt is slightly high for bank debt if it converts right on the nose with a stock price +30% in 2028  (~8.2%). 

3) There is an extremely annoying path the price of the stock could take that maximizes value for the convertible note holder at the expense of the equity holder. This would require no conversion in 2027, and a conversion in 2028 well above the conversion price of  $9.45.

4) SOFI can start buying back the bonds if it trades 30% above the conversion in 2027 aka $12.29. (Section 4.03B)

5) If I'm reading section 4.03C of the terms correctly, they pay par (the face value of the bond) in this case, which means their rate would be 1.25% (no special extra provisions going on). As such...

6) If I'm a stockholder, I want SOFI to buy this convertible note back like crazy in 2027. I need the stock price over $12.29 for 20 of the 30 trading days consecutively starting Mar 2027. (MOASS folks take note, possibly someone else can confirm)

7) Annoying Path for Equity Holders: If I'm a convertible note holder, I'm incentivized to get this stock to stay under $12.29 until after Mar 2028. After Mar 2028, I'm thrilled if it closes out anywhere above $9.45. 

For anyone reviewing this, let me know if you see something in the 8K (linked above) and want to clarify if I've got it wrong about anything. 

Original tweets: 

https://x.com/marketswithmay/status/1826637352984363292

https://x.com/marketswithmay/status/1826647688047157481