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Zip share price: Where next following $400m notes offering?

We examine the specifics of the company’s recent convertible notes offering.

Notes Offering

Popular buy now pay later company Zip (ticker: Z1P), on Thursday announced it had successfully priced a $400 million, 7-year notes offering.

With Zip pursuing aggressive international expansion plans and rates near-zero, this move should hardly be viewed as a surprising one.

Looking at the specifics of the offering, the zero coupon, senior unsecured convertible notes will mature on 23 April, 2028.

The notes may be converted into fully paid Zip shares, with the conversion price of the notes set at $12.39 per share. This represents a significant premium to Zip's last traded price and its reference share price ($9.18 per share)

Where Next: Management noted that the funds raised would be used to drive growth in local and international markets, expand into new markets and for general corporate purposes.

'We are very pleased with the strong global demand for this Offering. This transaction further diversifies Zip's sources of capital and allows us to pursue our global growth aspirations while reducing potential dilution of existing shareholders,’ Zip's co-founder and COO, Peter Gray said.

RBC analysts, who have a Sector Perform rating and $10.00 price target on Zip, reacted positively to the notes offering, saying:

‘We see advantages of the convertible notes structure given the current environment, as it allows Zip to utilize attractive funding on the back of its share price run, delaying dilution and providing broad funding flexibility.’

This comes as Zip recently reported yet another quarter of blockbuster growth, reporting record Q3 transaction volumes, revenue and user statistics.

The company’s US growth was particularly impressive, with Quadpay reporting transaction volume growth of 234% and revenues of $54.4 million.

We look at these results in more depth here.

Delta Placement

At the same time, the company also flagged that it worked with Jarden Australia to execute a 'delta placement' of around 11 million Zip shares.

The aim of this placement was to 'facilitate some of the hedging activity in relation to the Notes'

On the placement, RBC said:

‘The put option for investors is attractive from the perspective of investors, and benefits Zip in this low interest environment.’

Co-founder Selldown

Beyond the notes offering and hedging operations, the company also revealed that co-founders Larry Diamond and Peter Gray would be reducing their stake in the business, selling up to 1.5 million and 0.5 million shares, respectively.

Zip Share Price ↑

Since announcing the notes offering on Wednesday, April 14, the Zip share price has trended lower. While the stock opened at $10.40 on Wednesday, on Friday it opened significantly below that, at $9.05.

Zip was up somewhat at the time of writing, trading at $9.26 per share.

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