Terms of the 0.00âŻ% Convertible Senior Notes
- Principal amount: $550âŻmillion total, issued in $1,000âpar notes.
- Coupon: 0.00âŻ% (zeroâcoupon).
- Maturity: 2030 (the notes mature on JuneâŻ15,âŻ2030).
- Conversion price: Set at $200.00 per share at issuance.
- Conversion ratio: 5.0 shares per $1,000 note (i.e., each $1,000 note is initially convertible into 5 ordinary shares of DigitalOcean).
Trading implications
The zeroâcoupon structure means the notes will be issued at a discount to face value, with the discount effectively acting as the âinterestâ component. The 5âshare conversion ratio translates to a $200 conversion price, which is well above DigitalOceanâs current trading level (roughly $70â$80 at the time of the announcement). Consequently, the notes are deepâoutâofâtheâmoney at issuance, offering limited upside unless the stock rallies dramatically above $200. In the short term, the market is likely to price the notes based on the discount yield and the probability of conversion, so expect the note price to trade close to the discounted cashâflow value rather than the equity upside. For traders, the primary opportunity lies in the âforced conversionâ risk if the stock appreciates sharply; otherwise, the notes function more like a longâdated, lowâyield debt instrument. A cautious approach would be to monitor DigitalOceanâs equity performance and any forwardâlooking guidance that could shift the conversion price dynamics, while treating the notes as a creditârisk play rather than a pure equityâconversion bet.