Jazz prices $1.1 billion of exchangeable notes and repurchases $225 million of shares

Jazz Pharmaceuticals priced an upsized $1.1 billion offering of 1.875% exchangeable senior notes due 2032 on Aug. 27 and agreed to repurchase about $225 million of its ordinary shares at the same time, the company said. The offering had been announced a day earlier at $1.0 billion.

The notes mature on Sept. 15, 2032. Jazz Investments I Limited, a wholly owned subsidiary, is the issuer, and Jazz Pharmaceuticals plc guarantees them. The sale was expected to close on Aug. 31.

The details

Interest accrues at 1.875% a year, paid semiannually starting March 15, 2027. The initial exchange rate is 2.8150 ordinary shares per $1,000 of principal, equal to an exchange price of about $355.24 a share. Jazz said that is a premium of about 42.5% to the $249.29 last reported sale price on Aug. 26.

On exchange, Jazz pays cash up to the principal amount and can settle any remainder in cash, shares or a mix. Initial purchasers have a 13-day option to purchase up to $150 million more notes. Jazz estimated net proceeds of about $1,079.0 million, or about $1,226.4 million if the option is fully exercised. It said it expects to use the money for general corporate purposes.

Jazz may redeem the notes for cash on or after Sept. 20, 2029 if its shares trade at or above 130% of the exchange price for at least 20 of 30 consecutive trading days. Holders can require repurchase at par after a fundamental change, as defined in the indenture. The company described the share buyback as part of the program it announced in July 2024 and said it would pay from cash on hand, at $249.29 a share.

Context

The deal follows a debt repayment. In June, Jazz repaid $1.0 billion of 2.00% exchangeable notes. At June 30 it held $2.2 billion in cash and investments against $4.4 billion of debt principal. The new coupon of 1.875% is below the old 2.00%, though the maturity runs six years from now.

The timing also follows a deal. On Aug. 10, Jazz agreed to acquire Actio Biosciences for $820 million upfront, a purchase it said it would fund with cash and existing facilities. Jazz also signed Amendment No. 4 to its credit agreement on Sept. 23, a facility originally dated May 5, 2021.

What it means for investors

Exchangeable notes at a low coupon are cheap financing, and the price is dilution risk: if the shares rise past about $355 and holders exchange, Jazz can pay the excess over principal in shares. Because Jazz can settle that excess in cash, the dilution is optional rather than automatic. The company's buyback of $225 million offsets some of it and was struck at the same $249.29 reference price.

Net of the repurchase, the offering adds roughly $850 million of cash, a rough figure from the net proceeds estimate. That adds to a balance sheet that already carried $4.4 billion of principal. Jazz has shown it can generate cash, with $824 million from operations in the first half, but interest, the Actio payment and further deals all draw on it. The risk is that leverage rises faster than earnings if a launch disappoints.

What to watch

Third-quarter results should show the final cash balance after the Actio closing and the notes. Jazz also said in August it was still evaluating more corporate development, so a further deal would test how much room the new capital leaves.

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JAZZJazz Pharmaceuticals plcNASDAQ · IrelandOpen the desk