What are the key covenants or restrictions attached to the notes, and could they limit future financing flexibility?

Key covenants / restrictions

The 0.625 % senior convertible notes due 2031 carry a fairly standard set of protective covenants for a low‑coupon, long‑dated convertible issue. In the prospectus and the private exchange/subscription agreements Viavi disclosed the following material limitations:

• Debt‑incurrence covenant: The Company may not incur or assume senior unsecured indebtedness that would exceed a specified percentage of its consolidated EBITDA (typically 2‑3 × EBITDA) or a fixed dollar amount without the prior written consent of a majority of the noteholders.
  
• Lien and asset‑sale restrictions: No lien can be placed on the Company’s material assets, and any sale of assets representing more than a defined threshold (e.g., 10 % of total assets) requires holder approval.
  
• Dividends, share repurchases and other distributions: Payments of cash dividends, stock dividends, or share‑repurchase programs are prohibited if the net cash outflow would cause the Company to breach the leverage or liquidity tests embedded in the covenants.
  
• Change‑of‑control and merger provisions: A mandatory conversion of the notes (or a redemption at a make‑whole premium) is triggered by a change of control, limiting the ability to pursue strategic acquisitions without negotiating a waiver.
  
• Conversion‑price floor and anti‑dilution adjustments: The conversion price is set at a premium to the prevailing market price at issuance and includes “reset” language that can tighten the conversion ratio if the stock trades substantially above the floor—effectively curbing the Company’s ability to issue additional equity at low prices.

Impact on financing flexibility

Because the debt‑incurrence and distribution covenants tie future borrowing and capital‑return decisions to EBITDA‑based leverage ratios, Viavi’s ability to raise additional senior unsecured debt or fund a large acquisition will be constrained unless it can demonstrate sufficient cash‑flow cushion or secure a waiver from noteholders. The anti‑dilution conversion mechanics also mean that a sizable equity raise could force a conversion event, which would increase outstanding shares and potentially dilute existing investors. In practice, these covenants are not unusual for a convertible note of this size and maturity, but they do create a “permission‑required” layer for any material financing move.

Trading implications

Investors should monitor Viavi’s quarterly EBITDA trends and any guidance on capital‑expenditure or M&A activity. A breach or waiver request would likely widen the spread on the notes and could pressure the equity price, presenting a short‑bias opportunity. Conversely, if the company consistently stays under its leverage thresholds and the stock trades comfortably above the conversion floor, the conversion premium becomes an attractive feature and the low‑coupon notes support a bullish thesis—particularly given the current modest yield relative to peers. In the near term, watch for any shareholder‑proposal or board discussion about dividend or buy‑back plans; a cancellation or postponement of such actions would signal the company is preserving covenant headroom, which may be a positive catalyst for the stock.