Omeros doesn’t expect dilution risk from $210 million of convertibles

By Devika Patel

Knoxville, Tenn., March 1 – Omeros Corp. management does not expect the $210 million of 6.25% convertible notes due Nov. 15, 2023 that it sold in November will cause dilution to shareholders.

The company bought a capped call, which eliminates dilution risk as long as the company’s stock (Nasdaq: OMER) is trading at or above $28.85 per share.

In addition, the company can redeem the convertibles if necessary, an executive said.

“In November, we issued $210 million of unsecured convertible senior notes with a 6.25% coupon, due on Nov. 15, 2023,” vice president, treasurer and chief financial officer Michael A. Jacobsen said on the company’s fourth quarter and year ended Dec. 31, 2018 earnings conference call on Friday.

“We also purchased a capped call that effectively eliminates any dilution risk related to the convertible notes until Omeros stock is trading at or above $28.85 per share.

“Even at this point, we have the option of avoiding conversion to common stock by redeeming the notes using cash generated through, for example, product sales, licensing revenues or replacing the current convertible instrument,” Jacobsen said.

Using $146 million of proceeds from the 6.25% convertibles, the company paid off a 12.25% secured term loan agreement with CRG Servicing LLC, which was set to mature on Sept. 30, 2022.

“We used $146 million of the net proceeds to pay off our previously existing notes payable to CRG and $33.2 million for the capped call,” Jacobsen said.

As of Dec. 31, 2018, the company had $60.5 million of cash, cash equivalents and short-term investments available for operations, compared to $83.75 million as of Dec. 31, 2017.

On Nov. 9, Omeros priced $210 million of five-year convertible notes at par with a coupon of 6.25% and an initial conversion premium of 20%.

Pricing came in line with talk for a fixed coupon of 6.25% and at the cheap end of talk for a premium of 20% to 25%.

Cantor Fitzgerald & Co. was the structuring adviser for the Rule 144A deal, which had a $40 million greenshoe.

The notes are non-callable until Nov. 15, 2019 and are then subject to a 150% hurdle. They are convertible into cash, shares or a combination of both at the company’s option.

In connection with the pricing, Omeros entered into capped call transactions with a cap price of $28.8360, representing a premium of 80% over the last reported sales price of stock.

Proceeds were earmarked to cover the cost of the call spread, to repay the secured term loan agreement with CRG and for general corporate purposes.

Omeros is a Seattle-based commercial-stage biopharmaceutical company.

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