Tenable Shares Fall After Announcing $650 Million Convertible Note Offering

Shares of Tenable Holdings Inc. (NASDAQ: TENB) fell 7% in premarket trading Thursday after the exposure management company announced plans to issue $650 million in convertible senior notes.

The debt offering, which is due in 2031, will be conducted as a private placement to qualified institutional buyers.

Details of the Offering

Tenable said it will also grant the initial purchasers an option to buy up to an additional $65 million in notes. The notes are senior, unsecured obligations, meaning they are not backed by specific collateral but have a priority claim over other junior debt in the event of a liquidation.

Upon conversion, the company will pay cash up to the principal amount of the notes. Any remaining value can be settled in cash, shares of Tenable common stock, or a combination of both, at the company's discretion. The interest on the notes will be payable semiannually.

Use of Proceeds and Market Reaction

The drop in Tenable's share price reflects investor concern about potential shareholder dilution. Convertible debt can be exchanged for a company's stock in the future, which increases the total number of shares outstanding and reduces the ownership percentage of existing shareholders.

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Tenable outlined several uses for the net proceeds from the offering, including:

• Repaying its existing term loans in full.
• Repurchasing up to $200 million of its common stock concurrently with the offering.
• Funding privately negotiated capped call transactions to limit potential dilution.
• General corporate purposes, which may include acquisitions, working capital, or capital expenditures.

Mitigating Shareholder Dilution

The company's plan to repurchase $200 million in stock is a measure intended to offset some of the dilutive effects of the new notes. Additionally, the capped call transactions are a common hedging strategy used alongside convertible debt to effectively increase the price at which the notes convert into stock, thereby reducing dilution up to a specified cap.

Tenable also stated its intention to enter into a new senior secured revolving credit facility after the offering closes, though it provided no assurance on the timing or terms of such an agreement.