Twitter Capital Raise Verdict: Upsized and Dirt Cheap

Twitter Inc. (NYSE: TWTR) has had an incredible week. On top of scoring multiple analyst upgrades, Twitter raised much more than expected in its convertible debt offering — to the tune of $1.8 billion. The terms of the offering were also cheap enough that they would leave many value investors scratching their heads over how the company could land such cheap financing.

The analysts liked Twitter even before a debt financing priced. Twitter was started as Buy with a $62 price target at Canaccord Genuity, and it was raised to Buy from Neutral by UBS with its price target raised to $65 from $50.

The big news is that Twitter’s $1.8 billion convertible debt offering was larger than the $1.3 billion and $1.5 billion that had been discussed before the formal pricing and demand. Twitter’s first $900 million aggregate principal amount of convertible senior notes are due in 2019, and the second $900 million tranche of convertible senior notes are due in 2021.

What is amazing is that the coupon on the five-year note is only 0.25%, and the coupon on the seven-year note was 1%. The notes that were sold will be senior and unsecured obligations of Twitter. Twitter has to pay out only $11.25 million in annual interest for this $1.8 billion in capital raised, and the conversion price is handily above the current share price. If this is not a major score for Twitter, nothing else is either.

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The sale of the notes to the initial purchasers is expected to settle on September 17, and it is expected to result in approximately $1.77 billion in net proceeds to the company. Twitter has even granted the initial purchasers of the notes a 30-day overallotment option valued at $200 million. This option allows for a purchase of up to an additional $100 million aggregate principal amount from both the 2019 and 2021 notes.

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