Fastly (FSLY) Stock Gains 10% on Plans to Repurchase Convertible Notes

  • Fastly (NYSE:FSLY) stock is soaring, up 13% today
  • This comes as the company announced a deal to repurchase senior convertible notes
  • This repurchase was done at a 25% discount, netting the company more than $50 million in cash
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It’s a rather interesting time in the world of finance. With recession worries creeping in, investors are scrambling to find ways of de-risking their portfolios. How such sentiment has played into the price action of Fastly (NYSE:FSLY) and FSLY stock today is remarkable.

Currently, FSLY stock is up more than 13% today. Now, it’s worth noting that most tech is surging, as risk-on sentiment is forming. This is largely the result of a widespread belief that the Federal Reserve won’t hike as aggressively as previously thought.

Accordingly, there’s a divergence building among investors. Ultra-bears, who suggest a recession is just around the corner, are keen to preserve capital using any means necessary. A prime example is today’s announcement from Fastly that senior convertible note holders of 0% coupon debt due 2026 will sell these notes for a 25% discount to Fastly. The company will pay $176.2 million to re-acquire these notes, which previously provided $235 million in financing. This deal should close at the end of May.

Let’s dive into why this is such a big deal and why FSLY stock is bouncing so hard on this news.

Free Money Is a Good Thing for FSLY Stock

First of all, having 0% convertible notes in any market is incredible. Fastly essentially worked out a deal to borrow $235 million, with the only upside provided being that of potential capital appreciation.

However, with FSLY stock down, investors seem willing to cut their losses. Taking a 25% haircut on this debt has provided Fastly with more than $53 million in free cash. Investors certainly seem to like that. In other words, Fastly believes in its future and is willing to give up some of its cash to take advantage of this deal.

If Fastly doesn’t go bankrupt in the next four years, this will end up looking like the steal of the century. Someone just gave up more than $50 million for certainty that they’d be repaid. This debt, albeit without interest, still represents a better bet than equity in this environment, given the downside pressure the stock market has seen. Accordingly, this deal is a real head-scratcher to the market, which is viewing Fastly as the big winner from this deal. Rightfully so.

On the date of publication, Chris MacDonald did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Chris MacDonald’s love for investing led him to pursue an MBA in Finance and take on a number of management roles in corporate finance and venture capital over the past 15 years. His experience as a financial analyst in the past, coupled with his fervor for finding undervalued growth opportunities, contribute to his conservative, long-term investing perspective.


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