Southern Company announces offering of $1.25 billion in aggregate principal amount of Convertible Senior Notes due June 15, 2028

Rhea-AI Summary

Southern Company (NYSE: SO) has announced a $1.25 billion offering of convertible senior notes due June 15, 2028, with an additional option for purchasers to acquire up to $200 million more. The notes will be senior, unsecured obligations with semiannual interest payments. Prior to March 15, 2028, conversion will be limited to specific events and periods. Upon conversion, Southern Company will pay cash up to the principal amount and may settle the remainder in cash, common stock, or a combination. The company plans to use the proceeds to repurchase portions of its existing convertible notes (Series 2023A and 2024A), repay commercial paper borrowings, and for general corporate purposes. The offering is being made through private placement to qualified institutional buyers under Rule 144A.

Positive

• New $1.25 billion convertible notes offering provides additional financial flexibility
• Opportunity to refinance existing convertible notes potentially at better terms
• Proceeds will help reduce commercial paper borrowings, improving debt structure

Negative

• Additional debt burden could increase financial leverage
• Potential dilution for existing shareholders upon conversion
• Complex transaction structure may create short-term stock price volatility due to hedging activities

Insights

Corporate Bond Specialist

Southern Company's $1.25B convertible note offering refinances debt while extending maturities, a prudent financial management move.

Southern Company's $1.25 billion convertible senior notes offering represents a strategic refinancing maneuver with multiple implications for its capital structure. The 2028 maturity extends the company's debt profile beyond the existing convertible notes (2025 and 2027 maturities) they're partially replacing, reducing near-term refinancing pressure. This defensive measure suggests management is prudently capitalizing on the current interest rate environment to optimize their debt stack.

The convertible feature provides Southern flexibility - only paying cash up to the principal amount upon conversion, with options to settle the remainder in cash, stock, or a combination. This optionality helps them manage potential dilution while preserving liquidity. The allocation of proceeds toward commercial paper repayment indicates they're replacing shorter-term, potentially higher-cost debt with longer-dated obligations.

This transaction is effectively term-extending their liabilities without dramatically increasing leverage. By targeting existing convertible noteholders through privately negotiated repurchases, they're minimizing market disruption while potentially capturing favorable pricing. The remaining proceeds directed to commercial paper reinforces that this isn't about increasing leverage but optimizing the company's debt profile. The detailed explanation of hedging activity by existing noteholders shows sophisticated awareness of market mechanics surrounding convertible arbitrage strategies to mitigate volatility in their stock during this transition.

ATLANTA, May 20, 2025 /PRNewswire/ -- Southern Company (NYSE: SO) today announced an offering of $1.25 billion in aggregate principal amount of its convertible senior notes due June 15, 2028 (the "Convertible Notes") in a private placement to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended (the "Securities Act"). In addition, Southern Company expects to grant the initial purchasers of the Convertible Notes an option to purchase, for settlement within a period of 13 days from, and including, the date the Convertible Notes are first issued, up to an additional $200 million in aggregate principal amount of the Convertible Notes.

Final terms of the Convertible Notes, including the initial conversion price, interest rate and certain other terms of the Convertible Notes, will be determined at the time of pricing. The Convertible Notes will be senior, unsecured obligations of Southern Company. Interest on the Convertible Notes will be paid semiannually. The Convertible Notes will mature on June 15, 2028, unless repurchased or converted in accordance with their terms prior to such date.

Prior to March 15, 2028, the Convertible Notes will be convertible only upon the occurrence of certain events and during certain periods. Thereafter, the Convertible Notes will be convertible at any time until the close of business on the second scheduled trading day immediately preceding the maturity date. Upon conversion, Southern Company will pay cash up to the aggregate principal amount of the Convertible Notes to be converted and pay or deliver, as the case may be, cash, shares of Southern Company's common stock, or a combination of cash and shares of common stock, at Southern Company's election, in respect of the remainder, if any, of Southern Company's conversion obligation in excess of the aggregate principal amount of the Convertible Notes being converted.

Southern Company intends to use a portion of the net proceeds from this offering to repurchase a portion of its Series 2023A 3.875% Convertible Senior Notes due December 15, 2025 (the "Series 2023A Convertible Notes") and its Series 2024A 4.50% Convertible Senior Notes due June 15, 2027 (together with the Series 2023A Convertible Notes, the "Existing Convertible Notes"), in each case through individually negotiated transactions with a limited number of holders thereof (each, a "note repurchase transaction"), effected through one of the initial purchasers of the Convertible Notes or its affiliate. Southern Company intends to use any remaining net proceeds to repay all or a portion of its outstanding commercial paper borrowings and for other general corporate purposes, which may include investment in its subsidiaries.

Contemporaneously with the pricing of the Convertible Notes, Southern Company expects to enter into one or more separate and privately negotiated transactions with a limited number of holders of the Existing Convertible Notes to use a portion of the proceeds of the offering to repurchase a portion of the Existing Convertible Notes on terms to be negotiated with each such holder. The terms of each note repurchase transaction are anticipated to be individually negotiated with each such holder of the Existing Convertible Notes and will depend on several factors, including the market price of Southern Company's common stock and the trading price of the applicable Existing Convertible Notes at the time of each such note repurchase transaction. Southern Company may also repurchase outstanding Existing Convertible Notes following the completion of the offering of the Convertible Notes. No assurance can be given as to how much, if any, of the Existing Convertible Notes will be repurchased or the terms on which they will be repurchased. 

Southern Company expects that holders of the Existing Convertible Notes that sell their Existing Convertible Notes to Southern Company in any note repurchase transaction may enter into or unwind various derivatives with respect to Southern Company's common stock and/or purchase or sell shares of Southern Company's common stock in the market to hedge their exposure in connection with these transactions. In particular, Southern Company expects that many holders of the Existing Convertible Notes employ a convertible arbitrage strategy with respect to the Existing Convertible Notes and have a short position with respect to Southern Company's common stock that they would close, through purchases of Southern Company's common stock and/or the entry into or unwind of economically equivalent derivatives transactions with respect to Southern Company's common stock, in connection with Southern Company's repurchase of their Existing Convertible Notes for cash. This activity could increase (or reduce the size of any decrease in) the market price of Southern Company's common stock or the Convertible Notes at that time and could result in a higher effective conversion price for the Convertible Notes.

This press release shall not constitute an offer to sell or a solicitation of an offer to buy, nor shall there be any sale of these securities in any jurisdiction in which such an offer, solicitation or sale would be unlawful. The offer and sale of the Convertible Notes and the shares of common stock issuable upon conversion of the Convertible Notes, if any, have not been, and will not be, registered under the Securities Act or the securities laws of any other jurisdiction, and the Convertible Notes and such shares of common stock may not be offered or sold without registration or an applicable exemption from registration requirements.

About Southern Company

Southern Company (NYSE: SO) is a leading energy provider serving 9 million customers across the Southeast and beyond through its family of companies. The company has electric operating companies in three states, natural gas distribution companies in four states, a competitive generation company, a leading distributed energy distribution company with national capabilities, a fiber optics network and telecommunications services.

Cautionary Notice Regarding Forward-Looking Statements

Certain information contained in this release is forward-looking information based on current expectations and plans that involve risks and uncertainties. Forward-looking information includes, among other things, statements concerning the planned offering of the Convertible Notes, the expected use of proceeds from the offering and the note repurchase transactions. Southern Company cautions that there are certain factors that can cause actual results to differ materially from the forward-looking information that has been provided. The reader is cautioned not to put undue reliance on this forward-looking information, which is not a guarantee of future performance and is subject to a number of uncertainties and other factors, many of which are outside the control of Southern Company; accordingly, there can be no assurance that such suggested results will be realized. The following factors, in addition to those discussed in Southern Company's Annual Report on Form 10-K for the year ended December 31, 2024, Quarterly Report on Form 10-Q for the quarter ended March 31, 2025 and subsequent securities filings, could cause actual results to differ materially from management expectations as suggested by such forward-looking information: global and U.S. economic conditions, including impacts from geopolitical conflicts, recession, inflation, tariffs, interest rate fluctuations, and financial market conditions, and the results of financing efforts; access to capital markets and other financing sources; changes in Southern Company's credit ratings; and catastrophic events such as fires, earthquakes, explosions, floods, tornadoes, hurricanes and other storms, droughts, pandemic health events, political unrest, wars, or other similar occurrences. Southern Company expressly disclaims any obligation to update any forward‐looking information.

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SOURCE Southern Company

FAQ

What is the size of Southern Company's (SO) new convertible notes offering?

Southern Company is offering $1.25 billion in convertible senior notes, with an additional option for purchasers to acquire up to $200 million more.

When do Southern Company's (SO) new convertible notes mature?

The convertible notes will mature on June 15, 2028, unless repurchased or converted earlier according to their terms.

How will Southern Company (SO) use the proceeds from the convertible notes?

The proceeds will be used to repurchase portions of existing convertible notes (Series 2023A and 2024A), repay commercial paper borrowings, and for general corporate purposes.

When can Southern Company's (SO) 2028 convertible notes be converted?

The notes can only be converted upon certain events before March 15, 2028. After that date, they can be converted at any time until two trading days before maturity.

How will Southern Company (SO) settle the conversion of these notes?

Upon conversion, Southern Company will pay cash up to the principal amount and can choose to settle the remainder in cash, common stock, or a combination of both.