Avid Bioservices Announces Pricing of Private Placement of Convertible Notes
- Avid Bioservices, Inc. (NASDAQ:CDMO) announced the pricing of $160 million aggregate principal amount of 7.00% Convertible Senior Notes due 2029.
- The company will use the net proceeds to repurchase its 1.250% Exchangeable Senior Notes due 2026 and repay any remaining outstanding 2026 Notes.
- The 2029 Notes will represent senior unsecured obligations of the company and will accrue interest payable semiannually.
- The conversion rate for the notes will initially be 101.1250 shares of the company’s common stock per $1,000 principal amount of notes, with an initial conversion price of approximately $9.89 per share.
- The initial conversion price represents a premium of about 12.5% over the last reported sale price of $8.79 per share of the company’s common stock on March 6, 2024.
- The offering is subject to customary closing conditions and is expected to close on March 12, 2024.
- None.
The issuance of $160 million in 7.00% Convertible Senior Notes by Avid Bioservices is a significant financial maneuver that warrants a multi-dimensional analysis. From a financial perspective, the pricing of convertible notes indicates a strategic capital raising effort. The 7.00% interest rate is notably higher than the average corporate bond yield, suggesting a risk premium associated with the company's creditworthiness. Furthermore, the initial conversion price set at a 12.5% premium to the current stock price is designed to minimize immediate dilution of existing shareholders while offering potential upside to note holders.
The intended use of proceeds to repurchase a portion of the existing 1.250% Exchangeable Senior Notes due 2026 and to repay any remaining notes suggests an active liability management strategy. This could be seen as an attempt to manage debt maturities and reduce interest expenses in the long run. However, the move to higher interest-bearing notes may increase short-term cash outflows, which could impact the company's liquidity profile.
Investors would need to consider the potential dilutive effect of the conversion option on future earnings per share, as well as the implications of the 'fundamental change' clause, which could trigger repurchases at unfavorable times for the company. The lack of a sinking fund provision indicates that the company is not obligated to set aside funds to repay the notes, which could raise concerns about the company's long-term ability to meet its debt obligations.
From a market perspective, the announcement of Avid Bioservices' convertible note offering provides insight into the company's strategic positioning within the biologics CDMO sector. The decision to issue convertible notes rather than traditional debt or equity could be indicative of the company's confidence in its future growth prospects, as conversion to equity would be beneficial to investors if the company's stock price appreciates.
The biologics CDMO market is highly competitive and Avid Bioservices' move to restructure its debt could be aimed at freeing up capital for investment in technology, capacity expansion, or potential acquisitions to enhance its service offerings and competitive edge. However, the market will also be observing how the increased debt servicing costs affect the company's financial flexibility and ability to invest in growth opportunities.
It is also important to note the private placement to 'qualified institutional buyers' under Rule 144A, which suggests a targeted approach to fundraising, potentially providing more favorable terms than a public offering and reflecting the company's relationships with institutional investors.
The legal intricacies of Avid Bioservices' convertible notes offering involve several key regulatory considerations. The notes have been structured to comply with Rule 144A, allowing for a private placement to qualified institutional buyers, which streamlines the issuance process compared to a public offering. This approach bypasses the need for a public registration statement, thereby expediting access to capital, although it limits the notes' marketability to a broader investor base.
The notes are described as senior unsecured obligations, ranking them above subordinated debt in case of liquidation, yet they are not secured by any assets, which could affect their attractiveness to risk-averse investors. The 'fundamental change' provision is a standard protective measure for investors, offering a potential exit strategy in the event of significant corporate restructuring or acquisition, which could impact the company's creditworthiness.
Finally, the lack of registration under the Securities Act for the notes and any shares of common stock issuable upon conversion means that resale is restricted, which could impact liquidity for note holders. This is a standard limitation for securities issued in private placements, but it is an important consideration for investors who may seek to exit their positions before maturity.
TUSTIN, Calif., March 06, 2024 (GLOBE NEWSWIRE) -- Avid Bioservices, Inc. (NASDAQ:CDMO), a dedicated biologics contract development and manufacturing organization (CDMO), announced today the pricing of
The 2029 Notes will represent senior unsecured obligations of the company and will accrue interest payable semiannually in arrears on March 1 and September 1 of each year, beginning on September 1, 2024. The notes will mature on March 1, 2029, unless earlier converted or repurchased.
Before September 1, 2028, holders will have the right to convert their 2029 Notes only upon the satisfaction of specified conditions and during certain periods. On or after September 1, 2028 until the close of business on the second scheduled trading day immediately preceding the maturity date, holders may convert all or any portion of their 2029 Notes at any time. Upon conversion, the company will pay or deliver, as the case may be, cash, shares of its common stock or a combination of cash and shares of its common stock, at its election. The conversion rate for the 2029 Notes will initially be 101.1250 shares of the company’s common stock per
The 2029 Notes are not redeemable and no sinking fund is provided for the 2029 Notes. If the company undergoes a “fundamental change” (as defined in the indenture that will govern the 2029 Notes), then, subject to certain conditions and limited exceptions, holders may require the company to repurchase for cash all or any portion of their 2029 Notes at a fundamental change repurchase price equal to
The company expects to use the net proceeds from the Offering (i) to repurchase for cash a portion of its
The 2029 Notes and any shares of the company’s common stock issuable upon conversion of the 2029 Notes have not been and will not be registered under the Securities Act, any state securities laws or the securities laws of any other jurisdiction, and unless so registered, may not be offered or sold in the United States absent registration or an applicable exemption from, or in a transaction not subject to, the registration requirements of the Securities Act and other applicable securities laws.
This press release is neither an offer to sell nor a solicitation of an offer to buy any of these securities nor shall there be any sale of these securities in any state or jurisdiction in which such an offer, solicitation or sale would be unlawful prior to the registration or qualification thereof under the securities laws of any such state or jurisdiction. Further, this press release is not an offer to repurchase the 2026 Notes. As described in the Current Report on Form 8-K filed by the company on March 6, 2024, all of the 2026 Notes have been accelerated and became due and payable pursuant to an acceleration notice the company received from a holder of the 2026 Notes on February 29, 2024.
Forward-Looking Statements
Statements in this press release, which are not purely historical, including statements regarding the timing, size and expected completion of the offering of 2029 Notes, the expected unwind of the company’s capped call transactions with respect to the 2026 Notes, the use of proceeds from the offering, and other statements that are not statements of historical fact, are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. The forward-looking statements involve risks and uncertainties which could cause actual results to differ materially from those expressed or implied by such forward-looking statements, including, but not limited to, those related to market and other conditions; the risk that the conditions to the closing of the proposed offering are not satisfied; and other risks and uncertainties that are described in the Risk Factors section of our annual report on Form 10-K for the fiscal year ended April 30, 2023, as well as any updates to these risk factors filed from time to time in our other filings with the Securities and Exchange Commission. We caution investors not to place undue reliance on the forward-looking statements contained in this press release, and we disclaim any obligation, and do not undertake, to update or revise any forward-looking statements in this press release except as may be required by law.
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