NEW YORK, December 5, 2023 – Sphere Entertainment Co. (NYSE: SPHR) (the “Company” or “Sphere Entertainment”) today announced that it intends to offer, subject to market conditions and other factors, $225 million in aggregate principal amount of convertible senior notes due 2028 in a private offering to persons reasonably believed to be qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended (the “Securities Act”). In connection with the offering of the notes, Sphere Entertainment expects to grant the initial purchasers an option to purchase, for settlement within a 13-day period beginning on, and including, the first date on which the notes are issued, up to an additional $33.75 million aggregate principal amount of the notes.
Sphere Entertainment intends to use a portion of the net proceeds from the offering of the notes to fund the cost of entering into the capped call transactions described below in connection with the offering. Sphere Entertainment intends to use the remainder of the net proceeds for general corporate purposes, including capital for Sphere-related growth initiatives.
If the initial purchasers exercise their option to purchase additional notes, Sphere Entertainment expects to use a portion of the proceeds from the sale of the additional notes to enter into additional capped call transactions and intends to use the remainder of the net proceeds from the sale of the additional notes for general corporate purposes, including capital for Sphere-related growth initiatives.
The notes will be general senior unsecured obligations of Sphere Entertainment and will mature on December 1, 2028, unless redeemed, repurchased or converted earlier. The initial conversion rate, interest rate, and certain other terms of the notes will be determined by negotiations between Sphere Entertainment and the initial purchasers. Prior to September 1, 2028, the notes will be convertible only upon satisfaction of certain conditions and during certain periods, and, thereafter, the notes will be convertible at any time until the close of business on the second scheduled trading day immediately preceding the maturity date. Upon conversion, Sphere Entertainment will pay or deliver, as the case may be, cash, shares of Sphere Entertainment’s Class A common stock or a combination of cash and shares of Sphere Entertainment’s Class A common stock, at its election.
In connection with the pricing of the notes, Sphere Entertainment intends to enter into capped call transactions with one or more of the initial purchasers and/or their respective affiliates or other financial institutions (the “hedge counterparties”). The capped call transactions will cover, subject to customary anti-dilution adjustments substantially similar to those applicable to the notes, the same number of shares of Sphere Entertainment’s Class A common stock that will initially underlie the notes. The capped call transactions are expected generally to reduce the potential dilution to Sphere Entertainment’s Class A common stock upon any conversion of notes and/or offset any potential cash payments Sphere Entertainment is required to make in excess of the principal amount of converted notes, as the case may be, with the maximum amount of such reduction and/or offset subject to a cap.
In connection with establishing their initial hedges of the capped call transactions, Sphere Entertainment expects the hedge counterparties or their respective affiliates will purchase shares of Sphere Entertainment’s Class A common stock and/or enter into various derivative transactions with respect to Sphere Entertainment’s Class A common stock concurrently with or shortly after the pricing of the notes, including from or with, as the case may be, certain investors in the notes. This activity could increase (or reduce the size of any decrease in) the market price of Sphere Entertainment’s Class A common stock or the trading price of the notes at that time.
In addition, the hedge counterparties or their respective affiliates may modify their hedge positions by entering into or unwinding various derivatives with respect to Sphere Entertainment’s Class A common stock and/or purchasing or selling Sphere Entertainment’s Class A common stock or other securities of Sphere Entertainment in secondary market transactions following the pricing of the notes and prior to the maturity of the notes (and are likely to do so, to the extent Sphere Entertainment exercises the relevant election under the capped call transactions, following any repurchase, redemption or conversion of the notes (whether upon a fundamental change or otherwise)). This activity could also cause or avoid an increase or a decrease in the market price of Sphere Entertainment’s Class A common stock or the notes which could affect a noteholder’s ability to convert the notes and, to the extent the activity occurs during any observation period related to a conversion of notes, it could affect the amount of cash and/or the number and value of shares of the Company’s common stock that a noteholder will receive upon conversion of its notes.
The notes will be offered to persons reasonably believed to be qualified institutional buyers pursuant to Rule 144A under the Securities Act. The offer and sale of the notes and the shares of Class A common stock issuable upon conversion of the notes, if any, have not been registered under the Securities Act or the securities laws of any other jurisdiction, and the notes and any such shares may not be offered or sold absent registration or an applicable exemption from such registration requirements.
This press release shall not constitute an offer to sell or a solicitation of an offer to buy any securities, including the notes or Sphere Entertainment common stock, nor shall there be any sale of securities in any state or jurisdiction in which such an offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such state or jurisdiction.