8-K: Repay Holdings Closes $287.5 Million Convertible Notes Offering, Repurchases 2026 Notes and Shares

Repay Holdings Corporation successfully closed a $287.5 million convertible senior notes offering, using proceeds to repurchase existing debt and shares, and fund capped call transactions.

Summary

• Repay Holdings Corporation closed a private offering of $287.5 million in convertible senior notes due 2029, including the full exercise of the initial purchasers' option.
• The notes bear a 2.875% interest rate, payable semi-annually, and mature on July 15, 2029.
• Net proceeds of approximately $279.2 million were generated after deducting fees and expenses.
• Approximately $39.2 million of the proceeds were used to pay for capped call transactions.
• Around $200 million of the proceeds, along with $5.1 million of cash on hand, were used to repurchase $220 million of outstanding 2026 convertible notes.
• An additional $40 million was used to repurchase approximately 3.9 million shares of common stock.
• The notes are convertible into cash, shares of common stock, or a combination thereof, at the company's election, with an initial conversion price of approximately $13.02 per share.
• The company may redeem the notes for cash on or after July 20, 2027, under certain conditions.
• The capped call transactions are intended to reduce potential dilution upon conversion of the notes.

Sentiment

Score: 7

Explanation: The document is generally positive, highlighting the successful closing of the offering and the strategic use of proceeds to manage debt and reduce potential dilution. However, there are some risks and costs associated with the transactions.

Positives

• The offering strengthens the company's balance sheet by addressing $220 million of 2026 debt.
• The company has financial flexibility to focus on profitable growth and cash generation.
• The repurchase of shares and commitment to repay the principal of the new notes in cash are expected to reduce potential share dilution.
• The capped call transactions are expected to reduce potential dilution to the common stock upon conversion of the notes.

Negatives

• The company incurred approximately $39.2 million in costs for the capped call transactions.
• The company used approximately $5.1 million of cash on hand to repurchase the 2026 notes.
• The company may be required to increase the conversion rate for holders who elect to convert their notes in connection with certain corporate events or a notice of redemption.

Risks

• The market price of the common stock or the convertible notes could be affected by the option counterparties' hedging activities.
• The repurchase of the 2026 notes and shares could increase or prevent a decrease in the market price of the common stock or the convertible notes.
• The company may not be able to redeem the notes prior to July 20, 2027.
• The company may be required to repurchase the notes for cash upon a fundamental change.

Future Outlook

The company expects the transaction to provide financial flexibility and reduce potential share dilution. The company intends to continue focusing on profitable growth and cash generation.

Management Comments

• John Morris, Co-founder and CEO of REPAY, said, 'We are pleased to successfully close this important financing for the Company, and we greatly appreciate the tremendous support from both existing and new investors.'
• Tim Murphy, CFO of REPAY, said, 'The transaction fortifies our balance sheet by addressing $220.0 million principal amount of our 2026 maturities, while providing us with financial flexibility to continue focusing on profitable growth and cash generation. We designed this transaction to minimize the future dilution for our shareholders. Our repurchase of approximately 3.9 million shares concurrently with the offering and our commitment to repay the principal amount of the new Convertible Notes in cash are expected to further reduce potential share dilution even beyond the $20.42 capped call strike price.'

Industry Context

This announcement is relevant to the financial technology and payment processing industry, where companies often use convertible debt to raise capital and manage their balance sheets. The use of capped call transactions is a common strategy to mitigate potential dilution from convertible notes.

Comparison to Industry Standards

• The use of convertible notes and capped call transactions is a common practice among growth-oriented companies in the technology and financial sectors, similar to companies like Block (formerly Square) and PayPal, which have also utilized these instruments to manage their capital structure.
• The interest rate of 2.875% on the convertible notes is relatively low, reflecting the current low-interest-rate environment and the company's credit profile.
• The initial conversion price of approximately $13.02 per share represents a premium of approximately 27.5% over the closing price of the common stock on July 2, 2024, which is within the typical range for convertible note offerings.
• The capped call cap price of $20.42 per share, representing a 100% premium over the closing price of the common stock on July 2, 2024, is a common strategy to reduce potential dilution from convertible notes, similar to what other companies in the sector have done.
• The repurchase of existing debt and shares is a common strategy to manage capital structure and reduce potential dilution, similar to what other companies in the sector have done.

Related Party Transactions

• The company entered into transactions to repurchase shares from purchasers of the convertible notes in privately negotiated transactions effected with or through one of the initial purchasers or its affiliate.
• The company negotiated the repurchase of the 2026 notes concurrently with the pricing of the convertible notes through one of the initial purchasers or its affiliate.

Stakeholder Impact

• Shareholders may benefit from reduced potential dilution and a stronger balance sheet.
• Bondholders may benefit from the company's improved financial position.
• Employees may benefit from the company's continued focus on growth and cash generation.
• Customers and suppliers may benefit from the company's improved financial stability.

Next Steps

• The company will continue to focus on profitable growth and cash generation.
• The company will monitor the market price of the common stock and the convertible notes.
• The company will manage its capital structure to reduce potential dilution.

Key Dates

Keywords

convertible notes, senior notes, capped call, share repurchase, debt repurchase, convertible debt, dilution, capital raise, financial flexibility, payment processing