Snowflake proposes $3.5 billion zero-coupon convertible note offering

Snowflake proposed a $3.5 billion private placement of 0.00% convertible senior notes, subject to market conditions and other factors. The company said proceeds may fund capped-call transactions, partial repurchases of its convertible notes due in 2027 and general corporate purposes.

The financing is split between $1.3 billion of notes due in 2029 and $2.2 billion due in 2031. The notes would be general unsecured obligations, carry no regular interest and would not increase in principal through accretion. The two series are scheduled to mature on October 15, 2029, and October 15, 2031, unless converted, redeemed or repurchased earlier.

Key terms and completion are still unsettled. Snowflake said the initial conversion rates and other final terms will be set when the offering is priced, and cautioned that it may not complete the transaction on the expected terms or at all. If holders later convert the notes, Snowflake may settle in cash, shares of its common stock or a combination of both at its election.

Snowflake expects to use part of the net proceeds for capped-call transactions tied to the new notes and to repurchase some of its 0.00% convertible senior notes due in 2027 for cash. A capped call is an options transaction intended to reduce potential share dilution from note conversions or offset cash payments above principal, up to a preset cap. The amount and terms of any 2027-note repurchases have not been determined, and the new offering is not contingent on completing those repurchases.

The company said the rest of the proceeds would go to general corporate purposes, which may include share repurchases, further repurchases of existing notes, acquisitions or strategic investments. A September 4 regulatory filing listed about $1.15 billion in principal outstanding for each of Snowflake’s existing 2027 and 2029 convertible-note series as of July 31. The filing said conversions of the 2027 notes through that date were not material.

The proposed notes would be sold to buyers reasonably believed to be qualified institutional buyers under Rule 144A. Snowflake also plans to give the initial purchasers 13-day options to buy up to another $200 million of the 2029 notes and $300 million of the 2031 notes. Exercising both options in full would increase the combined principal amount to as much as $4 billion.

Snowflake also cautioned that hedging activity related to the contemplated capped calls and any repurchases of the 2027 notes could affect the market prices of its common stock and the proposed notes. The company said the scale and overall market effect of that activity cannot yet be predicted.