Business Context and Reporting Period
Company: Zillow Group, Inc.
Filing Type: Form 8-K (Current Report)
Date of Report: September 4, 2019 (Event Date: September 9, 2019)
Event: Entry into a Material Definitive Agreement regarding the issuance of convertible senior notes.
Key Financial Metrics
This filing details a debt financing transaction rather than operational performance metrics. Key financial figures include:
- Total Principal Amount Raised: $1.1 billion ($600 million in 2024 Notes + $500 million in 2026 Notes).
- Net Proceeds: Approximately $1.0857 billion ($592.2 million from 2024 Notes + $493.5 million from 2026 Notes).
- Interest Rates: 0.75% per annum for 2024 Notes; 1.375% per annum for 2026 Notes.
- Cost of Capped Call Transactions: Approximately $150.6 million ($75.2 million for 2024 Notes + $75.4 million for 2026 Notes).
- Initial Conversion Price: Approximately $43.51 per share for both series.
Material Changes and Transaction Details
Zillow Group completed a private offering of convertible senior notes to qualified institutional buyers. The transaction introduces new senior unsecured obligations with the following terms:
- 2024 Notes: $600 million aggregate principal, maturing September 1, 2024. Interest payable semi-annually starting March 1, 2020.
- 2026 Notes: $500 million aggregate principal, maturing September 1, 2026. Interest payable semi-annually starting March 1, 2020.
- Over-Allotment Option: Initial purchasers hold a 30-day option to purchase up to an additional $90 million of 2024 Notes and $75 million of 2026 Notes.
- Conversion Terms: Notes are convertible into cash, Class C Capital Stock, or a combination. Conversion is generally restricted until March 1, 2024 (for 2024 Notes) or March 1, 2026 (for 2026 Notes), except under specific conditions.
- Redemption: The Company may redeem notes for cash on or after September 5, 2022 (2024 Notes) or September 5, 2023 (2026 Notes), under certain circumstances.
Outlook, Risks, and Contingencies
Capped Call Transactions: The Company entered into privately negotiated capped call transactions with Morgan Stanley, Citibank, Goldman Sachs, Barclays, and JPMorgan Chase. These transactions are designed to reduce potential dilution upon conversion and offset cash payments exceeding the principal amount if the stock price exceeds the strike price.
- 2024 Notes Cap Price: $72.5175 per share (approx. 125% premium over closing price on Sept 4, 2019).
- 2026 Notes Cap Price: $80.5750 per share (approx. 150% premium over closing price on Sept 4, 2019).
- Events of Default: Include nonpayment, breach of covenants, defaults on other indebtedness, and bankruptcy events. Upon default, holders of at least 25% of the notes may declare the principal immediately due.
- Subordination: Notes are senior unsecured obligations but are structurally junior to all indebtedness and liabilities of the Company's subsidiaries.
- Fundamental Change: Holders may require the Company to repurchase notes at 100% of principal plus accrued interest if a fundamental change occurs.
Investor Verification Checklist
- Verify the final exercise of the 30-day over-allotment option by initial purchasers.
- Review the full text of the Indentures (Exhibits 4.1 and 4.2) for specific covenants and redemption triggers.
- Monitor the Company's stock price relative to the conversion price ($43.51) and cap prices ($72.52 and $80.58) to assess dilution risk.
- Confirm the impact of the $150.6 million cost of capped call transactions on the Company's cash flow and balance sheet.
- Check for any subsequent filings regarding the use of net proceeds beyond the capped call transactions.