Business Context and Reporting Period
This Form 8-K Current Report, dated June 9, 2020, details a material definitive agreement entered into by Varex Imaging Corp. The report covers the closing of a private placement offering of convertible senior notes and related hedging transactions executed on June 4 and June 5, 2020.
Key Financial Metrics and Transaction Details
- Debt Issuance: The Company sold $200 million aggregate principal amount of 4.00% Convertible Senior Notes due 2025. This includes the full exercise of an option by initial purchasers to buy an additional $25 million of notes.
- Interest Rate: 4.00% per annum, payable semi-annually in arrears beginning December 1, 2020.
- Maturity Date: June 1, 2025.
- Conversion Terms: Initial conversion rate is 48.0480 shares per $1,000 principal amount (approx. $20.81 per share). Settlement may be in cash, stock, or a combination at the Company's election.
- Hedge Transactions: The Company paid approximately $53.4 million for convertible note hedge transactions covering approximately 8.4 million shares (plus additional shares from the option exercise) to offset potential dilution.
- Warrant Transactions: The Company sold warrants to counterparties covering approximately 8.4 million shares (plus additional shares) at a strike price of $24.9750, receiving approximately $43.6 million in proceeds.
Material Changes and Structural Impacts
The filing represents a significant change in the Company's capital structure through the addition of $200 million in unsecured, unsubordinated debt. The Notes rank senior to future subordinated indebtedness and equal to existing unsecured debt but are structurally subordinated to subsidiary liabilities. The transaction includes complex derivative components (hedges and warrants) that impact potential future dilution and cash flows, though the filing does not provide updated consolidated revenue, profit, or cash flow statements for the period.
Guidance, Risks, and Contingencies
- Redemption Rights: The Company may redeem the Notes on or after June 1, 2023, if the stock price exceeds 130% of the conversion price for specified periods.
- Conversion Triggers: Prior to December 1, 2024, conversion is limited to specific scenarios, including stock price thresholds, trading price discrepancies, or corporate transactions. Full conversion rights are available to holders on or after December 1, 2024.
- Events of Default: Includes failure to pay interest or principal, bankruptcy, and cross-defaults on indebtedness of $25 million or more.
- Dilution Risk: The warrant transactions may have a dilutive effect on earnings per share if the market value of the stock exceeds the warrant strike price.
Investor Verification Checklist
- Verify the exact net proceeds received after deducting the $53.4 million hedge cost and adding the $43.6 million warrant proceeds.
- Confirm the impact of the $200 million debt on the Company's leverage ratios and liquidity position.
- Review the specific terms of the "make-whole fundamental change" provisions to understand potential acceleration of conversion rates.
- Assess the dilution impact of the 8.4 million shares covered by the warrants and hedges relative to the current share count.
- Check for any covenants in the Indenture that may restrict future operational flexibility or additional borrowing.