The chip specialist is selling new convertible debt notes, and the stock is wilting due to their potentially dilutive impact.
Indie Semiconductor (INDI -23.67%) stock is falling fast in Tuesday’s trading. The chip specialist’s share price was down by 20.7% as of 2:45 p.m. ET. The sell-off came in reaction to the company’s announcement after the market closed Monday that it plans to sell up to $175 million in convertible senior debt notes.
The company will sell those debt notes in a private offering. In addition, management left the door open for an additional $26.25 million in debt-note sales. The notes are slated to mature on Dec. 15, 2029, although the company has laid out provisions that would allow for the notes to be redeemed for cash on or after Dec. 20, 2027.
What’s next for Indie Semiconductor?
If Indie Semiconductor stock performs well over the next several years, it’s reasonable to expect that holders of the convertible notes will redeem them for shares of new common stock. That would increase the chip company’s shares outstanding, diluting the value of the shares held by current investors.
Based on Indie’s market cap of roughly $852 million, the creation of new stock at corresponding levels would work out to a roughly 24% increase over the company’s current share count (assuming the additional $26.25 million worth of notes are also sold). On the other hand, the company’s stock has already pulled back substantially in response to the new debt offering, so there’s not much additional reason to be concerned about whether or not the notes eventually get converted into common stock at this point.
Indie’s recent move highlights the company’s profitability and funding concerns. Depending on how effectively it utilizes the funds raised through this new convertible debt offering, the capital-raising move could be either beneficial or deleterious to long-term shareholders.
Keith Noonan has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
