Axon Enterprise launches $1 billion convertible notes offering alongside credit facility expansion

Axon Enterprise, Inc. (AXON) announced a public offering of $1.0 billion aggregate principal amount of 0% convertible senior notes due 2031, according to a regulatory filing Monday. The company also expects to grant underwriters an option to purchase up to an additional $150.0 million aggregate principal amount of notes to cover over-allotments.

Goldman Sachs & Co. LLC, Morgan Stanley & Co. LLC, J.P. Morgan Securities LLC, RBC Capital Markets, LLC and Citigroup Global Markets Inc. are acting as joint lead book-running managers for the offering.

Key takeaways

• Axon is offering $1.0 billion in zero-coupon convertible notes due September 15, 2031.
• Underwriters have an option to purchase an additional $150.0 million in notes.
• The company entered an amendment to expand its revolving credit facility to $500.0 million.
• Net proceeds will fund capped call transactions and general corporate purposes.

Note terms and credit agreement amendment

The notes will be senior, unsecured obligations of the company and will not bear regular interest, and the principal amount will not accrete, according to the filing. Noteholders may require the company to repurchase notes on March 20, 2031, at a repurchase price equal to the principal amount plus accrued and unpaid special interest.

Concurrently with the offering announcements, Axon entered into a second amendment to its credit agreement with JPMorgan Chase Bank, N.A. as administrative agent. The amendment increases the existing revolving credit facility from $300.0 million to $500.0 million, with an ability to increase it by an additional $150.0 million. The maturity date of the credit facility extends to up to five years from the closing of the second amendment, expected to be September 18, 2031.

The revolving facility bears interest at SOFR plus 1.25% to 1.75% per year based on the company's net leverage ratio, with a commitment fee of 0.15% per annum on the average daily unused amount. The credit agreement requires Axon to maintain a maximum net leverage ratio no greater than 3.50 to 1.00 and a minimum interest coverage ratio no less than 3.50 to 1.00.

Use of proceeds and capped call transactions

Axon intends to use a portion of the net proceeds to pay the cost of privately negotiated capped call transactions with option counterparties. The remaining net proceeds will go toward general corporate purposes, including capital to support growth and acquisitions or investments in other businesses or technologies.

The capped call transactions are expected to reduce potential dilution to the company's common stock upon conversion of the notes or offset cash payments in excess of the principal amount. The company expects to enter into additional capped call transactions if underwriters exercise their over-allotment option.

Why it matters

The simultaneous expansion of the credit facility and issuance of zero-coupon convertible debt alters the company's capital structure while providing liquidity for general corporate purposes and potential acquisitions. Capped call transactions are designed to mitigate equity dilution when holders convert notes, though option counterparties engage in hedging activities that can influence the market price of the common stock.

By the numbers

Remaining conditions and closing timeline

The second amendment to the credit agreement is expected to become effective substantially concurrently with, and its effectiveness is conditioned upon, the consummation of the convertible notes offering. The final conversion rate, pricing, premium, and other terms of the notes are to be determined upon pricing of the offering.

The offering is made pursuant to an effective shelf registration statement on file with the Securities and Exchange Commission, and purchasers must refer to the preliminary prospectus supplement and accompanying prospectus filed on the SEC website.