Akamai Technologies Inc. borrowed $2.2 billion at 1% by selling investors a piece of its stock’s upside, the latest technology company to tap the convertible-bond market to pay for computing capacity.
The Cambridge, Mass., content-delivery and security company priced $1.1 billion of convertible senior notes due 2028 and $1.1 billion due 2031, both carrying a 1% coupon, in a private offering to institutional buyers on Monday. Buyers have an option to take $150 million more of each series. The offering is set to close on Nov. 12.
Conversion terms
The 2028 notes convert at about $112.41 a share, a 40% premium to Akamai’s $80.29 closing price on Nov. 9, and the 2031 notes at about $102.37, a 27.5% premium. Akamai will pay cash up to the principal on conversion and can settle any excess in cash, stock or both. Net proceeds come to about $2.16 billion, or about $2.46 billion if the extra notes are sold.
Akamai will spend roughly $250.3 million of that on convertible note hedges, partly offset by selling warrants, a structure that reduces dilution if the shares rise above the conversion price. The company said banks setting up those hedges may buy its shares or related derivatives around the pricing, which can support the stock.
Refinancing plus capex
The rest of the money will go toward repaying part of Akamai’s $1.15 billion of 0.375% convertible notes that mature in September 2027 and toward capital spending in its Cloud Infrastructure Services business, which rents computing power to customers including AI developers. The new coupon is well above the 0.375% Akamai pays on the notes it is replacing, a reminder that even equity-linked debt now costs more. It is still far below the 5% the Treasury paid on new 10-year notes this week, which is the appeal of converts for companies willing to give up some upside.
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