Challenged buy now, pay later company Zip has moved this week to pay a portion of its $400 million of outstanding Zero Coupon Senior Convertible Notes early.
Noteholders of these notes, which are due to mature in 2028, were offered to convert their notes into ordinary shares at a conversion price of A$12.0576 per share and receive a cash amount of A$17,860 per A$100,000 of existing notes.
Zip told the market in an ASX announcement that it had launched what it called a ‘liability management exercise’ which has effectively been done through a heavily discounted buyback.
Zip co-founder and COO Peter Gray said: “This transaction is a very important step to proactively manage our balance sheet, reducing our future liabilities, in a very cost-efficient manner. We are pleased to confirm we have successfully retired $70m, of our $400m convertible bond, at a very significant discount to face value. The transaction is highly accretive for Zip as our cash liability will be reduced by $76.6m by issuing only 27.8 million shares, implying an effective conversion price of $2.76 per share.”
When announced, the proposal was limited to 15 per cent of the notes outstanding, or $60 million but the offer was increased due to demand with 17.5 per cent being converted ($70 million.)
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Noteholders accepting the terms of the deal were effectively repaid 24 per cent of the face value of the bonds in the form of 17.9 per cent in cash and about 5.5 per cent in the form of converted shares at their current 67¢ share price.
To fund some of the conversion, Zip announced it had raised $13.6 million from institutional investors at a 13.2% discount of 62 cents for each new share. This was a 10.4 per cent discount to volume weighted price on Monday 12th December.
Zip Co Ltd (ASX: ZIP) also provided the following trading update in its ASX announcement: “Zip reaffirms the comments provided to the market at its Annual General Meeting on 3 November 2022. The Company is on track to deliver positive cash EBTDA as a group in the first half of FY24. The Company continues to make progress with its rest of world strategic review, which it expects to deliver cash inflows or a neutralising of cash burn in each of its non core markets during the second half of FY23.
“The quarter to date has delivered business performance and cashflows in line with seasonal trends and expectations. Zip remains confident it has sufficient cash and liquidity to support the Company through to positive cash EBTDA in the first half of FY24.”
Zip Co’s market capitalisation is around $450 million, down from around $3.5 billion at the start of 2022.
