On April 3, 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 that the underwriter of each of Nevro’s previously announced concurrent public offerings of (a) 1,625,000 shares of its common stock (the "common stock offering") and (b) $165,000,000 aggregate amount of its 2.75% convertible senior notes due 2025 (the "initial notes") (the "notes offering") has fully exercised its option to purchase an additional (a) 243,750 shares of Nevro’s common stock at a public offering price of $84.00 per share, less underwriting discounts and commissions, and (b) an additional $24,750,000 aggregate amount of notes (the "additional notes" and, collectively with the initial notes, the "notes"), less underwriting discounts and commissions (Press release, Nevro, APR 3, 2020, View Source [SID1234556130]). Following the full exercise of the underwriter’s option, Nevro anticipates selling an aggregate of 1,868,750 shares of its common stock, with total gross proceeds of approximately $157.0 million before deducting underwriting discounts and commissions and estimated offering expenses, and $189,750,000 aggregate amount of notes, before deducting underwriting discounts and commissions and estimated offering expenses. The offerings, including the common stock and additional notes that are part of the option exercise, 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 exercise of the underwriter’s option to purchase additional notes, Nevro entered into privately-negotiated convertible note hedge transactions with the underwriter and/or its affiliate 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 additional 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 additional 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.
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. 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 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 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. Nevro expects to use the remainder of the net proceeds from the sale of additional shares of its common stock and the additional notes 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.
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.