Twitter Raises $1.8 Billion After Boosting Debt Offering

Twitter Inc. raised $1.8 billion after boosting its first-ever debt offering, selling notes that owners can convert into the microblogger’s stock at a price that’s 47 percent above yesterday’s closing level.

In its biggest fundraising since completing an initial public offering last November, the San Francisco-based company sold convertible bonds in two $900 million pieces, one maturing in five years and one coming due in seven years, according to a regulatory filing today. The notes have a conversion price of about $77.64 a share above yesterday’s $52.64 stock price, which exceeds the median for comparable transactions tracked by Bloomberg.

Bond investors snapped up Twitter’s offering at rates lower than a five-year industry average, rewarding the company with funds to back acquisitions and to pay for an expansion. Twitter, which isn’t projected to be profitable this year, has been investing to build up its advertising business and add engineers who can help tweak its product to appeal to a broader audience.

“It’s a big landmark deal; investors can’t afford not to participate in it,” said Bill Feingold, co-founder of New York-based Hillside Advisors LLC and author of “Beating the Indexes” a book about convertible bonds, who used to trade the debt at Goldman Sachs Group Inc. “It’s a tremendous deal for the company to raise as much capital as they can right now.”

Bond Coupons

The five-year notes will pay 0.25 percent and the seven-year portion will pay 1 percentage point, according to the filing. The coupons are lower than the average 1.5 percent paid by Internet media companies on convertible debt since 2009, according to data compiled by Bloomberg. Twitter was initially planning to raise as much as $1.5 billion.

The 47.5 percent conversion exceeds the median of 35 percent for comparable transactions, Bloomberg data show. Priceline Group Inc., the largest online travel agent in the U.S., sold $1 billion of 0.9 percent notes due 2021 last month with an initial conversion premium of 60 percent, Bloomberg data show.

Twitter’s stock has averaged $46.58 per share since the company raised $1.82 billion in an IPO on Nov. 6 at a price of $26 per share, Bloomberg data show. Analysts forecast a $54.28 target price for the stock over the next year, according to the average estimate of 29 analysts surveyed by Bloomberg.

Twitter shares slipped 0.53 percent to $52.11 today. The stock was down 17 percent for the year through yesterday’s close.

Price Talk

The debt securities priced at the middle of the range initially circulated to investors, according to two people with knowledge of the offering. Twitter’s five-year bond coupon was marketed by lead banks Goldman Sachs and Morgan Stanley between 0 percent and 0.5 percent, and the seven-year offering between 0.75 percent and 1.25 percent, said the people, who asked not to be identified because they lacked authorization to speak publicly.

After the IPO, Twitter executives saw an opportunity to raise cash cheaply in the debt market without immediately diluting shareholders’ stakes, a person familiar with the matter said earlier this week. The company was inspired by technology leaders, including Google Inc. and Netflix Inc., successfully offering debt while borrowing remains inexpensive, said the person, who asked not to be identified because the plans were private.

Before it's here, it's on the Bloomberg Terminal.