DEFA14A: LivePerson Deleveraging: $341M Debt Exchange, 39% Equity Dilution

LivePerson exchanges $341.1 million of 2026 convertible notes for cash, new secured notes, and equity, significantly deleveraging its balance sheet and extending its debt maturity profile.

Summary

• LivePerson entered into an agreement on August 11, 2025, to exchange approximately $341.1 million aggregate principal amount of its 0% Convertible Senior Notes due 2026 (2026 Notes).
• The exchange consideration includes $45.0 million in cash, $115.0 million of 10.0% Second Lien Senior Subordinated Secured Notes due 2029 (New Secured Notes), shares of common stock (Common Equity Shares), and shares of Series B Fixed Rate Convertible Perpetual Preferred Stock (Series B Preferred Stock).
• The aggregate number of Common Equity Shares and shares of common stock into which the Series B Preferred Stock are convertible will equal 39.0% of the fully diluted common stock as of the closing date.
• The New Secured Notes will accrue interest at 10.0% per annum, payable 100% in-kind (PIK) until March 15, 2027, then optionally cash/PIK until June 15, 2028, and primarily cash thereafter, maturing on December 15, 2029.
• Series B Preferred Stock will have an initial stated value of $1,000 per share and accrue regular dividends at 15.0% per annum, increasing to 20.0% if outstanding after the first anniversary of the closing date, payable in cash or PIK.
• The company will seek stockholder approval to amend its charter to increase authorized common stock, which would enable automatic conversion of the Series B Preferred Stock.
• The closing of the exchange is expected prior to September 30, 2025.
• The board of directors adopted Fourth Amended and Restated Bylaws on August 8, 2025, reducing the quorum for special stockholder meetings from 50% to 33 1/3%.
• LivePerson expects its total liquidity to range between $92 million and $130 million for the fiscal years ending December 31, 2029, based on current projections and after the $45 million cash outlay, but not accounting for other effects of the exchange.

Sentiment

Score: 3

Explanation: While the transaction addresses a critical near-term debt maturity and provides a longer runway, the terms are highly unfavorable for existing common shareholders due to significant dilution (39% of fully diluted equity) and the high cost of new capital (10% PIK debt, 15-20% PIK preferred dividends). This indicates significant financial distress and a high cost to maintain solvency, severely limiting future upside for common equity.

Positives

• Successfully addresses $341.1 million of near-term 2026 convertible debt, significantly extending maturity to December 15, 2029.
• Captures a $181 million debt discount, which management states 'accretes to shareholders'.
• Deleveraged the balance sheet by $226 million in principal amount.
• Provides the company with extended 'runway' to execute its strategic plans.
• Management believes the exchange shifts a greater proportion of enterprise value to shareholders.

Negatives

• Significant dilution for existing common shareholders, with new equity (Common Equity Shares and Series B Preferred conversion shares) representing 39.0% of fully diluted common stock.
• New Secured Notes carry a high 10.0% annual interest rate, initially payable 100% in-kind, increasing the principal amount of debt.
• Series B Preferred Stock has a high dividend rate of 15.0% per annum (increasing to 20.0% after one year if not converted), also payable in-kind, further increasing the stated value.
• The Series B Preferred Stock has strong liquidation preferences, including a 150% increase in liquidation preference if bankruptcy occurs after the first anniversary of the closing date.
• The company requires shareholder approval for a charter amendment to increase authorized common stock, without which the Series B Preferred Stock will remain outstanding indefinitely, accruing high PIK dividends.
• The liquidity estimate of $92 million to $130 million for fiscal years ending 2029 does not fully account for the cash interest payments on the New Secured Notes or other refinancing, potentially overstating future liquidity.

Risks

• Inability to retain existing customers or attract new ones.
• Intensive personnel, infrastructure, and resource commitment required to support the customer base.
• Difficulty in retaining key personnel, attracting new personnel, and managing staff attrition.
• Challenges in successfully integrating acquisitions.
• Inability to refinance substantial indebtedness before it becomes due or to secure necessary additional financing on commercially reasonable terms.
• Lengthy sales cycles and delays in implementation cycles.
• Payment-related risks and potential fluctuations in quarterly revenue and operating results.
• Limitations on the effectiveness of internal controls.
• Non-payment or late payment from a significant number of customers.
• Volatility in capital markets.
• Risks related to customer retention and engagement.
• Challenges in developing and maintaining successful relationships with partners, service partners, social media, and other third-party messaging platforms.
• Inability to effectively operate on mobile devices.
• Highly competitive markets.
• General economic conditions.
• Failures or security breaches in services, third-party providers, or customer websites.
• Regulation or possible misappropriation of personal information, privacy data protection, and AI issues, leading to increased government regulation and legal obligations.
• Ongoing litigation and legal matters.
• New regulatory or other legal requirements materially impacting the business.
• Governmental export controls and economic sanctions.
• Industry-specific regulation and unfavorable industry-specific laws.
• Future regulation of the Internet or mobile devices.
• Technology-related defects disrupting services.
• Inability to protect intellectual property rights or potential infringement of third-party IP.
• Risks associated with the use of AI in product offerings or by vendors.
• Presence of errors, failures, or bugs in products.
• Inability to license necessary third-party software.
• Potential adverse impact due to foreign currency and cryptocurrency exchange rate fluctuations.
• Additional regulatory requirements, tax liabilities, and other risks from international expansion.
• Risks related to operations in Israel.
• Potential failure to meet service level commitments to certain customers.
• Legal liability and/or negative publicity for services provided via technology platforms.
• Inability to maintain reputation.
• Changes in accounting principles.
• Natural catastrophic events and business interruptions by man-made problems.
• Potential limitations on the ability to use net operating losses to offset future taxable income.
• Risks related to common stock being traded on more than one securities exchange.

Future Outlook

The company anticipates extending its financial runway through 2029 by addressing its 2026 debt maturity. It expects total liquidity to range between $92 million and $130 million for the fiscal years ending December 31, 2029, based on current projections, assuming a steady state business, and after the $45 million cash outlay for the exchange. This estimate does not fully account for all effects of the exchange, such as cash interest payments on the New Secured Notes. The company also plans to seek stockholder approval for a charter amendment to increase authorized common stock, which would allow for the automatic conversion of Series B Preferred Stock into common shares.

Management Comments

• "Today's transaction represents the successful culmination of our multi-year strategy to deleverage the balance sheet."
• "This exchange captures $181 million of debt discount that accretes to shareholders, deleverages the balance sheet by $226 million, and extends LivePerson's runway through 2029."
• "In sum, we believe this exchange shifts a greater proportion of enterprise value to shareholders, and provides the company with time to execute its strategy, reinforcing its position as a long-term strategic partner to customers, and creating runway to further enhance value for shareholders."
• "The Company's executive officers are supportive of the transaction and intend to vote their shares in favor of the proposed charter amendment."

Industry Context

This debt restructuring reflects a common challenge for technology companies, particularly those in growth phases or facing market headwinds, to manage significant convertible debt maturities. The use of a combination of cash, new secured debt, and equity (both common and preferred) is a complex but often necessary strategy to extend financial runway and avoid more severe liquidity crises. The high cost of the new capital (10% debt, 15-20% preferred dividends, significant dilution) suggests a challenging financing environment or perceived higher risk for the company, which is not uncommon for companies undergoing significant transformations or facing profitability pressures in the competitive AI and conversational technology space.

Comparison to Industry Standards

• NA

Management Changes

Corporate Governance

Stakeholder Impact

• Shareholders (Common Stock): Significant dilution (39% of fully diluted common stock) and potential for further dilution if Series B Preferred Stock remains outstanding and accrues PIK dividends. Future earnings per share will be negatively impacted by high interest on new debt and preferred dividends.
• Noteholders (2026 Notes): Receive a mix of cash, new secured debt, and equity, addressing their investment in the maturing 2026 notes. They gain significant equity ownership and protective rights through the Series B Preferred Stock and board representation.
• Creditors (2029 Notes): The new secured notes are subordinated to the existing 2029 notes, maintaining their senior position. The overall debt restructuring may improve the company's solvency, indirectly benefiting all creditors by reducing default risk.
• Employees: The extension of financial runway provides greater stability for the company, which could positively impact employee morale and job security.
• Customers: Increased financial stability may allow the company to continue investing in its products and services, potentially benefiting customers through ongoing innovation and support.

Next Steps

• Closing of the Exchange, anticipated prior to September 30, 2025, subject to satisfaction of closing conditions.
• Company to prepare and file a proxy statement with the SEC within 30 days of August 11, 2025, to seek stockholder approval for a charter amendment to increase authorized common stock.
• Hold a special meeting of stockholders (Stockholders Meeting) to consider the charter amendment proposal. If not approved, call subsequent special meetings every 90 days (at least twice) and then at each annual meeting until approval is obtained or preferred shares are no longer outstanding.
• If the charter amendment is approved, file it with the Secretary of State of Delaware within one business day.
• Use reasonable best efforts to cause the Conversion Shares to be approved for listing on the Nasdaq Global Select Market.
• Within five calendar days after the Closing Date, prepare and file a registration statement covering the resale of Common Equity Shares and Conversion Shares.
• Appoint one Class III director nominated by Noteholders and one Class II director selected by the Board from a pool of three candidates provided by Noteholders, subject to standard governance processes.

Key Dates

Recommendation

This transaction, while addressing a critical near-term debt maturity and extending the company's runway, comes at an extremely high cost to existing common shareholders. The issuance of new equity representing 39.0% of the fully diluted common stock results in severe dilution. Furthermore, the new $115 million secured notes carry a high 10.0% PIK interest rate, and the Series B Preferred Stock accrues dividends at 15.0% (increasing to 20.0%) also largely PIK, with strong liquidation preferences. These terms indicate significant financial distress and will heavily burden future earnings, making it challenging for common equity to see meaningful upside. A seasoned investor would recognize that while the company avoids immediate default, the long-term value for existing common shareholders is severely impaired by the dilution and the high cost of servicing the new capital structure.

Keywords

Debt Restructuring, Convertible Notes, Second Lien Notes, Preferred Stock, Equity Dilution, Corporate Finance, SEC Filing, LivePerson, LPSN, Financial Restructuring, Capital Structure, AI Company, Customer Conversations