On April 2, 2020 Nevro Corp. ("Nevro") (NYSE: NVRO), a global medical device company that is providing innovative, evidence-based solutions for the treatment of chronic pain, reported the pricing of concurrent underwritten public offerings of (a) 1,625,000 shares of its common stock at a public offering price of $84.00 per share for gross proceeds, before deducting underwriting discounts and commissions and estimated offering costs, of approximately $136,500,000 (the "common stock offering") and (b) $165,000,000 aggregate amount of its 2.75% convertible senior notes due 2025 (the "notes") (the "notes offering") (Press release, Nevro, APR 2, 2020, View Source [SID1234556114]). Nevro has granted the underwriters of the offerings a 30-day option to purchase an additional (a) 243,750 shares of common stock at the public offering price, less underwriting discounts and commissions and (b) $24,750,000 aggregate amount of notes, less underwriting discounts and commissions and solely to cover over-allotments with respect to the notes offering. All of the shares of common stock to be sold in the common stock offering are being offered by Nevro. The offerings of the shares and the notes are expected to close on April 6, 2020, subject to customary closing conditions.
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The notes will be senior, unsecured obligations of Nevro, and will bear interest at a rate of 2.75% per year. Interest will be payable semi-annually in arrears on April 1 and October 1 of each year, beginning on October 1, 2020. The notes will mature on April 1, 2025, unless earlier repurchased or converted. Nevro may not redeem the notes, and no sinking fund is provided for the notes. Holders of the notes will have the right to require Nevro to repurchase all or a portion of their notes upon the occurrence of a fundamental change (as defined in the indenture governing the notes) at a cash purchase price of 100% of their principal amount plus any accrued and unpaid interest to, but excluding, the fundamental change repurchase date.
The notes may be converted at an initial conversion rate of 9.5238 shares of Nevro’s common stock per $1,000 principal amount of notes (which is equivalent to an initial conversion price of approximately $105.00 per share and represents a conversion premium of 25.0% to the public offering price of Nevro’s common stock in the common stock offering). Prior to the close of business on the business day immediately preceding October 1, 2024, the notes will be convertible at the option of the holders of the notes only upon the satisfaction of specified conditions and during certain periods. On or after October 1, 2024 until the close of business on the second scheduled trading day preceding the maturity date, the notes will be convertible at the option of the holders of notes at any time regardless of these conditions. Conversions of the notes will be settled in cash, shares of Nevro’s common stock or a combination thereof, at Nevro’s election.
In connection with the pricing of the notes, Nevro entered into privately-negotiated convertible note hedge transactions with one or more of the underwriters and/or their respective affiliates and/or other financial institutions (the "option counterparties"). These transactions cover, subject to customary anti-dilution adjustments, the number of shares of Nevro’s common stock that will initially underlie the notes, and are expected generally to reduce the potential equity dilution, and/or offset any cash payments in excess of the principal amount due, as the case may be, upon conversion of the notes. Nevro entered into separate, privately-negotiated warrant transactions with the option counterparties at a higher strike price relating to the same number of shares of Nevro’s common stock, subject to customary anti-dilution adjustments, pursuant to which Nevro will sell warrants to the option counterparties. The warrants could have a dilutive effect on Nevro’s outstanding common stock to the extent that the price of Nevro’s common stock exceeds the strike price of those warrants. The strike price of the warrants will initially be $147.00 per share, which represents a premium of approximately 75% over the public offering price of Nevro’s common stock in the common stock offering and is subject to certain adjustments under the terms of the warrant transactions.
If the underwriters exercise their option to purchase additional notes, Nevro expects to enter into additional convertible note hedge transactions and additional warrant transactions with the option counterparties, which will initially cover the number of shares of Nevro’s common stock that will initially underlie the additional notes sold to the underwriters.
Morgan Stanley is acting as bookrunning manager for the offerings.
Nevro has been advised that in connection with establishing their initial hedges of the convertible note hedge and warrant transactions, the option counterparties or their respective affiliates expect to enter into various derivative transactions with respect to Nevro’s common stock concurrently with or shortly after the pricing of the notes. This activity could increase (or reduce the size of any decrease in) the market price of Nevro’s common stock or the notes at that time. The option counterparties or their respective affiliates may modify their hedge positions by entering into or unwinding various derivatives with respect to Nevro’s common stock and/or purchasing or selling Nevro’s common stock or other securities of Nevro in secondary market transactions from time to time following the pricing of the notes and prior to maturity of the notes (and are likely to do so during any observation period related to a conversion of the notes).
The potential effect, if any, of these transactions and activities on the market price of Nevro’s common stock or the notes will depend in part on market conditions and cannot be ascertained at this time, but any of these activities could adversely affect the value of Nevro’s common stock, which could affect the ability to convert the notes, the value of the notes and the amount of cash, if any, and the number of and value of the shares of Nevro’s common stock, if any, holders would receive upon conversion of the notes.
Nevro intends to use a portion of the net proceeds from the common stock offering and the notes offering to pay the cost of the convertible note hedge transactions (after such cost is partially offset by the proceeds to Nevro from the sale of the warrants). Nevro expects to use the remainder of the net proceeds from the common stock offering for general corporate purposes, including the repayment of its 1.75% Convertible Senior Notes due 2021 (the "existing convertible notes") at maturity and Nevro may use a portion of the remaining net proceeds to repurchase a portion of the existing convertible notes prior to their maturity. If the underwriters exercise their option to purchase additional notes, then Nevro intends to use a portion of the net proceeds from the sale of additional notes, together with the proceeds from the sale of additional warrants, to enter into additional convertible note hedge transactions with the option counterparties and Nevro intends to use the remaining net proceeds from the sale of such additional notes as set forth above.
A shelf registration statement on Form S-3 (including a base prospectus) relating to the common stock offering and the notes offering was automatically declared effective by the Securities and Exchange Commission ("SEC"). Preliminary prospectus supplements related to each of the common stock offering and the notes offering (together with such base prospectus, each a "prospectus"), have been filed with the SEC and are available on the SEC’s website located at www.sec.gov. Copies of the prospectus relating to the common stock offering and the notes offering may be obtained, when available, from: Morgan Stanley & Co. LLC, Attention: Prospectus Department, 180 Varick Street, 2nd Floor, New York, NY 10014.
This press release shall not constitute an offer to sell, or the solicitation of an offer to buy, nor shall there be any sale, of these securities in any state or jurisdiction in which such offer, solicitation, or sale would be unlawful prior to the registration or qualification under the securities laws of any such state or jurisdiction.