Rapid7 secures $260m in latest convertible senior notes offering.

Rapid7, known for its quest to foster a safer digital realm by streamlining cybersecurity, announced a significant shift in its financial position today.

The company has confirmed the pricing of convertible senior notes, upped to an impressive $260m. This principal amount, due in 2029, was initially presented to qualified institutional buyers in a private placement following the directives of the Securities Act of 1933.

Notably, the original offering was set at $250m but saw a boost in anticipation of demand. Additionally, an option is on the table for initial purchasers to increase their uptake by another $40m if they so wish. Finalisation of this sale is keenly anticipated on September 8, 2023, given the standard closing conditions are met.

Diving deeper into the specifics of these notes, they will operate as general unsecured obligations of Rapid7. They will carry an interest rate of 1.25% per annum, set to be paid out twice a year, every March 15 and September 15, starting in 2024.

The notes are structured to mature on March 15, 2029, unless earlier arrangements are made for their conversion, redemption, or repurchase. An appealing aspect for potential investors is the initial conversion rate. This stands at 15.4213 shares of Rapid7’s common stock for every $1,000 of the principal note amount, equating to a conversion price of roughly $64.85 per share. This price tag flaunts a notable 32.50% premium over the reported sale price of the company’s stock as of September 5, 2023.

Upon conversion, holders of these notes can expect returns in cash, shares of the company’s common stock, or a mix of the two, subject to Rapid7’s discretion. Provisions have been made to redeem the notes for cash, either in full or partially, if specific conditions related to the company’s stock price are met, starting September 21, 2026. Similarly, there are conditions in place for noteholders should there be a “fundamental change” within the company’s structure.

Rapid7 has projected net proceeds from this offering to hover around $253m, potentially going up to $292m if initial purchasers go all-in on their additional purchase option. A significant chunk, approximated at $201.5m, of these net proceeds is earmarked to repurchase Rapid7’s 2.25% Convertible Senior Notes due in 2025. The company also intends to allocate around $31.7m from the offering’s net proceeds to fund the capped call transactions they’ve described. Beyond these specific allocations, Rapid7 plans to channel the remainder into various corporate areas. This includes investment in product development, sales and marketing, general and administrative purposes, and bolstering their working capital. The possibility of the funds fuelling acquisitions or strategic investments is not off the table, though no immediate plans are in sight.

Tied to the 2025 note repurchase, Rapid7 anticipates certain holders will engage in hedge position adjustments. This may lead to a purchase of the company’s common stock or the initiation or unwinding of various derivatives tied to it. Similarly, as part of the note pricing, Rapid7 has partnered with financial institutions for capped call transactions, hoping to mitigate potential dilution of the company’s common stock upon any note conversions.

Rapid7’s business endeavours have always been centred on their vision for a digitally secure world. The company’s dedication to making cybersecurity more straightforward and accessible has earned them the trust of over 11,000 global customers. Their solutions integrate cloud risk management with threat detection, enabling businesses to curtail vulnerabilities and neutralise threats swiftly.

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