Twitter Marks S&P Entry With $1 Billion Trip to Debt Market

(Bloomberg) -- Twitter Inc. is celebrating its entry into the stock-market big leagues by selling $1 billion of bonds in its second-ever debt offering.

The convertible note sale comes just a day before the company is welcomed into the S&P 500 Index, which will force index funds with trillions of dollars in assets to own it. The move marks a kind of coming of age for the microblogging site, which for years struggled to rise beyond its image as an insular platform for celebrities, politicians and journalists, and which never quite seemed to measure up to bigger rival Facebook Inc.

Twitter’s shares surged soon after its 2013 initial public offering, but then fell more than 80 percent from their peak in the next three years. More recently, the company’s started to turn things around.

"The timing of a convertible-bond deal with the company’s entrance into the S&P 500 makes sense," said Dave King, a senior portfolio manager at Columbia Threadneedle Investments. “There will likely be a strong demand for the stock from index funds,” he said. That would help offset selling pressure from convertible arbitragers trying to establish short positions in Twitter, in anticipation of going long the new bonds, King said.

Goldman Sachs Group Inc., Morgan Stanley and JPMorgan Chase & Co. are leading the underwriting of the bond sale, according to people with knowledge of the matter, who asked not to be identified discussing private details. Representatives for San Francisco-based Twitter declined to comment.

Purchase Option

The social media company said in a statement on Wednesday it also plans to allow initial buyers of the unsecured securities a 30-day option to purchase up to an additional $150 million in principal to cover over-allotments, should there be any.

Twitter said it will enter into privately negotiated convertible-note hedge transactions with one or more of the underwriters or other financial institutions, which the company expects to help minimize any dilutive impact on its common stock upon conversion of the notes. The proceeds of the bonds will be used to pay the cost of these transactions as well as for general corporate purposes, according to the statement.

The hedge transactions are a call spread, or the simultaneous sale and purchase of call options with different strike prices, to effectively raise the conversion price. That means that Twitter will essentially avoid issuing shares unless its stock price rises more.

Stock Doubles

Twitter’s share price has more than doubled from last year’s low on optimism over Chief Executive Officer Jack Dorsey’s strategy to push into live video and more personalized content, boosting its appeal among users and advertisers. After having reported quarterly losses every quarter as a public company, Twitter posted positive earnings in the fourth quarter of last year and the first of 2018.

“It is paramount to issue convertible bonds when the stock price is higher,” said Chris Hartman, a senior portfolio manager at Aegon Asset Management. “This issue is an interesting way to get involved again in the equity.”

Twitter will replace Monsanto Co. in the S&P 500 prior to the start of trading on Thursday. Its stock was up 0.2 percent as of 1:00 p.m. in New York trading Wednesday.

The company’s first debt offering came in September 2014, when it raised $1.8 billion of convertible notes in a boosted sale.

Bloomberg LP produces TicToc, a global breaking-news network for the Twitter service.

--With assistance from Molly Schuetz.

To contact the reporter on this story: Molly Smith in New York at msmith604@bloomberg.net

To contact the editors responsible for this story: Nikolaj Gammeltoft at ngammeltoft@bloomberg.net, Kenneth Pringle, Dan Wilchins

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