What are the specific terms and pricing of the capped calls being purchased, and how do they impact the overall cost of capital?

Terms and pricing of the capped calls

• Strike / cap – The “capped calls” are written at a strike equal to a 100 % premium to the last reported sale price of Commvault common stock on 2 Sept 2025. In other words, if the stock closed at $X on that date, the call will be exercisable at $2 × X.
  
• Purchase price – The calls are being bought with a portion of the proceeds from the upsized $‑500 million (example) convertible senior notes. The purchase price is the market‑priced premium for a call with that strike, which in a typical equity‑linked transaction of this size is roughly 5‑7 % of the notional amount of the calls. The exact premium is not disclosed in the filing, but the pricing is calibrated so that the total cost of the call‑package is embedded in the overall “effective interest rate” of the notes.
  

Impact on overall cost of capital

• Dilution hedge vs. cost – The capped calls act as a hedge against dilution that would arise when the notes convert. By fixing the conversion price at a 100 % premium, the company limits how many additional shares can be issued, protecting existing shareholders and helping to keep the post‑conversion share price more stable. However, the premium paid for the calls is a cash outlay that reduces the net proceeds from the note issuance.
  
• Effective yield increase – Assuming the calls cost about 6 % of the notional, the net proceeds are reduced by that amount, which in turn raises the effective yield on the convertible notes by roughly 30‑50 basis points (depending on the final net proceeds). This uplift is the “cost of capital” premium that investors will price into the notes.
  
• Trading implication – The hedge lowers the upside risk of share‑price compression after conversion, making the convertible more attractive to debt‑focused investors. At the same time, the added cost makes the notes marginally more expensive for Commvault relative to an un‑hedged offering. Market participants should price the notes as a hybrid instrument with a slightly higher yield than comparable plain‑vanilla convertibles, while also monitoring the stock’s proximity to the $2 × X cap—if the price breaches the cap, the calls will be exercised, capping dilution but confirming the cost outlay.
  

Actionable insight – For traders, the presence of the capped‑call hedge suggests a lower probability of abrupt post‑conversion share‑price drops, which could support a modest premium on the convertible bond price. Short‑term equity traders may still view the stock as “capped‑upside” because any rally beyond the 100 % premium will not trigger additional dilution, potentially limiting upside momentum. Investors seeking yield should weigh the slightly higher effective cost of capital against the dilution protection benefit when positioning in CVLT’s new convertible notes.