Rocket Lab (RKLB) Shares Plunge 16% After $275M Convertible Notes Proposal
Rocket Lab (NASDAQ: RKLB) said on Thursday it had initiated a $275 million private offering of convertible bonds, sending its stock price tumbling at the opening bell. Simultaneously, the satellite launch service provider reported preliminary financial results for the fiscal Q4 2023.
What Has This Announcement Caused a Decline in Rocket Lab’s Shares?
Rocket Lab’s share price dived nearly 16% at the market open on Thursday after the company announced it had launched a private offering of $275 million 5-year convertible bonds.
The company intends to allocate roughly $40 million of the net proceeds to settle debts from an equipment financing agreement. The rest will be used for working capital and general corporate purposes, including potential acquisitions.
The satellite launch firm said the senior notes, set to mature on February 1, 2029, will accrue interest to be paid every six months. Furthermore, Rocket Lab plans to offer the initial buyers of these notes the option to acquire additional notes up to $41.25 million in principal amount. This option can be exercised within 13 days starting from the issuance date of the original notes.
The sharp drop in Rocket Lab’s stock on the announcement should be no surprise, given the historical effect convertible note offerings had on stocks. Notably, these deals typically shift the convertible bond investor base from long-only investors towards convertible arbitrage funds. Such funds buy the convertible notes and simultaneously short-sell the underlying stock, exerting significant downward pressure.
Rocket Lab’s Releases Preliminary Q4 2023 Results
Rocket Lab announced a convertible bond offering on the same day it unveiled its preliminary financial results for the fiscal fourth quarter.
According to the unaudited report for the quarter ended Dec. 31, Rocket Lab’s Q4 revenue is projected to range from $59.0 million to $61.0 million, marking an increase from the $51.8 million recorded in the same quarter last year. Specifically, its Space Systems segment experienced revenue growth, with estimates ranging between $50.5 million and $52.5 million, up from $39.7 million in Q4 of the previous year.
However, the revenue from its Launch Services is anticipated to be around $8.5 million, a decrease from the $12.0 million reported in the same period the year before.
The non-GAAP gross margin is forecasted to be in the range of 31.4% to 33.2%. Moreover, the company projects a net loss of $49 million to $52.5 million and an adjusted EBITDA loss between $28 million and $30 million.
In December, the SpaceX rival Rocket Lab won a $515 million contract with a government customer to design, manufacture, deliver, and operate 18 space vehicles.
Do you think Rocket Lab will be able to compete with SpaceX in the future? Let us know in the comments below.
Disclaimer: The author does not hold or have a position in any securities discussed in the article.
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