An Intriguing Transaction: GoPro Wants to Sell Some Debt.

GoPro’s press release of yesterday had the following title: “GoPro to Offer $150 Million of Convertible Senior Notes due 2022.”  Well, okay, they’ve run through a lot of cash lately.  That they might want to raise some makes sense.  We don’t yet know anything about the terms.  “The interest rate, conversion rate, offering price and other terms are to be determined upon pricing of the notes,” the press release says.

Here’s the link to the press release.  I’m hoping one of you who has more experience with this kind of deal might call me or post a comment on my web site explaining it.

The press release says, “GoPro expects to use a portion of the net proceeds of the offering of the notes to pay the aggregate prepayment of the prepaid forward described below and to use the remaining net proceeds from the offering of the notes for general corporate purposes.”

To start then, it’s unclear how much of this cash, if the deal gets done, will actually be available to the company.

The press release continues: “In connection with the issuance of the notes, GoPro expects to enter into a privately negotiated prepaid forward stock purchase transaction (the “prepaid forward”) with an affiliate of an initial purchaser in this offering (the “forward counterparty”), pursuant to which GoPro will purchase shares of Class A common stock, for settlement on or around April 15, 2022, subject to any early settlement, in whole or in part, of each prepaid forward. In the event that GoPro pays any cash dividends on the Class A common stock, the forward counterparty will pay an equivalent amount to GoPro. The prepaid forward is intended to facilitate privately negotiated derivative transactions by which investors in the notes will be able to hedge their investment in the notes.”

If you couldn’t quite get through that quote, I don’t blame you.  I guess that GoPro is planning to use part of the proceeds from the debt offering to purchase stock from an entity related to whoever is supposed to buy the debt.  However, that forward purchase doesn’t close until April 15, 2022, so GoPro has use of the funds from the offering until then.

Let me try and say that more clearly for my benefit as well as yours.  GoPro is borrowing money it’s going to use in part to buy its own stock back in five years when the notes mature from somebody related to the people lending them the $150 million. I wonder what the stock purchase price will be.  I also wonder why GoPro, if I’m reading this right, is taking on debt, for which they must pay interest, to buy back their own stock.

Wait a minute- it says “each” prepaid forward.  So whatever they are there will be, or might be, more than one?  It also says the prepaid forward are supposed to help the note investors hedge their risks in the notes.  That seems to suggest that GoPro is having a hard time raising this money.

Maybe they’ve got some kind of obligation to the seller to buy some stock back?  Maybe I don’t know what a “prepaid forward stock purchase transaction” is?  Look, I know what each of those words mean, but you put them all together and I get confused.

My confusion does not diminish when I read the following paragraph from the release.  Just skim it.  I don’t want you to go jargon blind.

“In connection with establishing its initial hedge of the prepaid forward, the forward counterparty (or its affiliate) expects to enter into one or more derivative transactions with respect to the Class A common stock with purchasers of the notes concurrently with or after the pricing of the notes. The prepaid forward is intended to reduce the dilution to our stockholders from the issuance of the notes and to allow certain investors to establish short positions that generally correspond to commercially reasonable initial hedges of their investment in the notes. The notional size of the prepaid forward will correspond to the notional size of the aggregate initial hedge position of such investors.”

That’s actually only part of the description, but I’m going to spare you.

I’ll keep an eye out for further information.  I’m not trying to drag you down into the flotsam and jetsam of the deal.  But I don’t know why GoPro is doing this deal.  Not saying they don’t have a good reason, but I can’t tell you what it is.  I’m hoping that more information will shed some light on the company’s financial circumstances.

2 replies
  1. Glenn
    Glenn says:

    “Voodoo economics?”
    I’m no financier but I do understand business mathematics and this doesn’t make any sense.
    I know that’s not what you asked for Jeff but I’m supporting your perplexity.

    • jeff
      jeff says:

      Hi Glenn,
      Well, you and I seem to be in the same place. My best guess is that this is a reflection of the business problems GoPro is having, but I don’t know how to connect the dots.

Comments are closed.