SentinelOne prices $1.25 billion of zero-coupon convertible notes due in 2031

SentinelOne has priced $1.25 billion of convertible senior notes that pay no interest and come due in 2031, pairing the raise with capped calls and a roughly $150 million Class A buyback at Tuesday's closing price.

What SentinelOne priced

SentinelOne said Wednesday it has priced $1.25 billion of 0% convertible senior notes due 2031 in a private placement to qualified institutional buyers under Rule 144A. The notes pay no regular interest, do not accrete, and mature on Oct. 1, 2031 unless they are converted, redeemed or repurchased earlier. Initial purchasers also have an option to buy up to another $187.5 million of notes for settlement during a 13-day window that starts on the first issue date.

Settlement with the initial purchasers is expected on Oct. 16, subject to customary closing conditions. The notes will be senior unsecured obligations. On conversion, SentinelOne can pay cash, deliver Class A shares, or use a mix of the two.

Conversion terms and the premium

Holders can convert in certain circumstances. The initial conversion rate is 32.0379 Class A shares per $1,000 of principal, or about $31.21 a share. That price is about a 30% premium to the last reported sale of $24.01 on the New York Stock Exchange on Oct. 13, according to the company.

The company may not redeem the notes before Oct. 9, 2029, except for a cleanup redemption if less than $100 million of principal remains outstanding. After that date it can redeem if the last reported Class A sale price has been at least 130% of the conversion price then in effect for at least 20 trading days, whether or not consecutive, during any 30 consecutive trading-day period ending on the trading day before notice, and only on a redemption date before the 31st scheduled trading day immediately prior to maturity. In a fundamental change, holders can force a cash repurchase at par plus any accrued special interest.

Capped calls and the buyback

Alongside the pricing, SentinelOne entered privately negotiated capped call transactions covering the shares initially underlying the notes. Those contracts are meant to limit dilution, or cash paid above principal, if notes convert, up to a cap. The initial cap price is $48.02 a share — a 100% premium to the same $24.01 Oct. 13 last sale.

The company estimates net proceeds of about $1.22 billion after the initial purchasers' discount and estimated expenses, or about $1.41 billion if the option is exercised in full. It expects to use roughly $131.6 million of that to pay for the capped calls and about $150 million to repurchase roughly 6.2 million Class A shares from note purchasers in privately negotiated deals at $24.01 a share. The rest is earmarked for general corporate purposes, further buybacks, working capital, capital spending and possible acquisitions or investments. Completing the notes sale does not depend on finishing the concurrent repurchase.

Why the raise matters

A $1.25 billion zero-coupon convertible package locks in long-dated funding without a coupon, at a conversion price well above Tuesday's close, while the capped calls and concurrent buyback blunt some of the dilution investors usually fear from converts. SentinelOne had flagged the planned offering on Tuesday; Wednesday's release fills in the conversion rate, premiums, capped-call cost and buyback size.

Until Oct. 16 the deal is priced but not closed. The pricing release does not name the initial purchasers, does not say how much cash SentinelOne already holds, and does not say why it chose this size or structure now. As of late Wednesday evening, TickerGrove had not located a matching Form 8-K on EDGAR for the priced notes.