Arbor Realty Trust, Inc. (NYSE:ABR) announced a proposed private placement of $300 million in convertible senior notes due 2029, a financing move that coincided with a 3.4% decline in the company’s shares in after-hours trading on Tuesday.
The offering is being targeted to qualified institutional buyers. Initial purchasers will have a 13-day option to acquire up to an additional $45 million of notes on identical terms, the company said.
Allocation of proceeds
Arbor said it plans to deploy roughly $130 million of the net proceeds to repurchase shares of its common stock through privately negotiated transactions. A portion of the proceeds, together with available cash, will be used to redeem in full the company’s outstanding $270 million of 4.50% senior notes due September 1, 2026, at par plus any accrued and unpaid interest. Any proceeds remaining after these actions will be used for general corporate purposes.
Note characteristics and conversion mechanism
The notes will be senior, unsecured obligations of Arbor and will accrue interest that will be payable semi-annually. Holders will have the right to convert their notes under certain circumstances and during defined periods. If conversions occur, Arbor will settle the converted notes by paying cash and, if applicable, delivering shares of common stock - with the choice of settlement method at the company’s sole election.
Arbor noted that the convertible notes will not be redeemable at the company’s option prior to maturity. Key economic terms - including the interest rate, the initial conversion rate and other specifics - will be set at the time the offering is priced.
Related derivative transaction
In connection with pricing, Arbor expects to enter into a prepaid forward stock repurchase transaction with one of the initial purchasers or an affiliate. The company described this arrangement as intended to facilitate privately negotiated derivative transactions between the forward counterparty and certain investors in the notes that relate to shares of Arbor common stock.
The company provided no further details on pricing or the conversion mechanics beyond indicating that those terms will be finalized at pricing, and did not attach a timetable for closing the offering.