What is the expected impact of the $115 million of 2029 Senior Subordinated Secured Notes on the company's leverage ratios and credit metrics?
Impact on leverage and credit metrics
The exchange of $341 million of 2026 convertible senior notes for $115 million of 2029 senior subordinated secured notes, $45 million in cash, and equity reduces the company’s outstanding convertible debt by roughly two‑thirds. Because the 2026 convertibles are counted as gross debt (and, being convertible, also inflate the “potential” debt load) the removal of $341 m cuts the headline net‑debt base by a comparable amount, while the $115 m of senior‑subordinated notes adds back only a third of that amount. Consequently, net‑debt‑to‑EBITDA is expected to fall by roughly 30‑35 % (assuming unchanged EBITDA), and the debt‑to‑capital ratio will move down in a similar proportion. The new notes are senior and secured, so they will be counted in the “senior‑secured” tier of the capital structure; this will shift a portion of the liability from the “convertible” tier (which is often treated as equity‑like for rating purposes) to the higher‑ranking senior‑secured tier, slightly raising the company’s senior‑secured leverage ratio (likely to remain well‑below 2.0× given the modest absolute size). Because interest expense on the new notes is expected to be higher than the coupon on the exchanged convertibles, interest coverage may dip modestly in the short term, but the net‑interest‑expense reduction from retiring the higher‑coupon convertibles should keep the coverage ratio comfortably above the 2.5–3.0× threshold most rating agencies view as a “good‑standing” level.
Trading implications
From a credit‑rating perspective, the transaction is a net deleveraging move that should be viewed positively by rating agencies and bond investors. The reduction in total debt and improvement in the net‑debt‑to‑EBITDA metric typically support a higher credit rating or at least a “stable‑to‑positive” outlook, which can tighten credit spreads on the new 2029 notes (currently trading at a modest spread over the 2029 senior‑secured benchmark). The equity component of the exchange (common and preferred shares) dilutes existing shareholders but also provides a cushion to senior‑secured creditors, further bolstering the credit profile.
For traders, the key actionable signal is that LPSN's credit quality is expected to improve despite the issuance of $115 m of senior debt. This should translate into lower yield spreads and moderate upside in the equity market as investors re‑price the reduced risk. A short‑to‑mid‑term long position in LPSN equity is justified, especially if the stock is trading below the recent 50‑day moving average, as the market may not have fully priced in the credit‑metric boost. Simultaneously, the 2029 Senior Subordinated Secured Notes are likely to trade at a slight discount to comparable senior‑secured issue spreads; a relative value trade—going long the 2029 notes and shorting higher‑yielding 2026 convertible notes (which remain on the market)—could capture the spread compression as the market adjusts to the revised capital structure. Monitoring the forthcoming rating agency updates (e.g., S&P, Moody’s) and the company’s Q3 2025 EBITDA guidance will be critical; a confirmed beat on earnings would reinforce the leverage improvements and could trigger a price breakout for both the equity and the 2029 note.