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Twitter raises $1.8 Billion in convertible note offering

Friday morning Twitter said it raised $1.8 billion in the convertible bond offering it announced earlier in the week, up from the $1.3 billion it planned to raise as the deal met with robust demand.

The five-year tranche of the offering, with notes due in 2019, carried a 0.25% interest rate, while the seven-year 2021 notes bear 1% interest, payable semi-annually in March and September.

The conversion rate, 12.8793 shares per $1,000 in principal, is equal to about $77.64 per share, according to Twitter’s filing. That is almost 48% above the stock’s $52.57 level Friday morning.

Out of the total proceeds from the offering, Twitter will use $112.3 million to pay the cost of hedges intended to offset any dilution from eventual conversion of the notes.

Twitter shares stumbled to start the year, but the stock has taken off since finding its footing in May and on Wednesday afternoon the social media company took advantage of the rebound.

After the closing bell Twitter announced it plans to sell $1.3 billion in convertible bonds. The offering, composed of two $650 million tranches — one a five-year due in 2019 and the other a seven-year due in 2021 — marks the company’s first debt offering. It will be up to Twitter’s discretion when and whether to convert the notes into cash, stock or a combination of both, at a conversion rate that will be determined upon pricing.

The convertible debt offering comes a bit more than two months after Twitter tapped the former Goldman Sachs banker who led its IPO, Anthony Noto, to serve as its chief financial officer.

Twitter stayed mum on what it intends to do with the proceeds, beyond paying for the cost of hedging the transactions to minimize the dilution of common shareholders, earmarking the funds only for “general corporate purposes.”

Earlier Wednesday, UBS analyst Eric Sheridan upped his rating on Twitter to buy, citing stronger advertising momentum and noting that the upside driven by digital advertising “can be achieved with little added [operating expense] versus our prior estimates.”

With that in mind, Twitter’s potential billion-dollar-plus war chest could certainly fund a major acquisition or the acceleration of other initiatives.

In connection with the convertible offering, Twitter also filed an amendment to its existing $1 billion revolving credit facility with a Morgan Stanley affiliate, allowing it to increase its indebtedness, but converting the facility from unsecured to secured if Twitter’s total leverage ratio exceeds 2.5-to-1 and it borrows 50% of the total amount.

Shares of Twitter, which gained 4.5% Wednesday, fell 1.5% in after-hours trading on news of the capital raise.

Another high-flying, high-multiple company that has utilized convertible bonds to raise capital recently is Tesla Motors, which sold debt in May 2013 and February of this year.

For the companies’ purposes, debt is cheap at today’s interest rates and if everything goes according to plan there will be plenty of money to either pay the interest or buy out the bondholders rather than a dilutive conversion into common equity. For investors, the opportunity to get some income through an investment in a high-growth company with the potential for that holding to convert into shares of the company, can be attractive in the current low-yield environment.

Shares of Twitter, which went public in November 2013 at $26.00 per share, closed Wednesday’s session at $52.91, double its IPO price and its highest close since March, but still almost 30% below its peak of $74.73.