Omeros Corporation (NASDAQ: OMER) is tumbling in the market this morning after the company announced the pricing of an offering. Unfortunately, the pricing showed that the transaction will lead to heavy dilution at a very steep discount. Of course, that news upset investors and sent the stock falling. Today, we’ll talk about:
- The offering;
- what we’re seeing from OMER stock as a result; and
- what we’ll be watching for ahead.
OMER Announces The Pricing Of An Offering
As mentioned above, Omeros is having a horrible start to the trading session this morning after the company announced the pricing of an offering. Through the transaction, the company will be raising $210 million in 6.25% Convertible Senior Notes due 2023 in a private offering to qualified institutional buyers.
In the release, OMER said that it has granted the initial purchasers of the Notes an option to purchase up to $40 million in additional Notes at the same terms and conditions.
OMER also said that it intends on using a portion of the proceeds from the offering to repay the full amounts of the outstanding Term Loan Agreement with CRG Servicing. The annual interest rate with CRG is 12.25% and the agreement matures on September 30, 2022.
Why This Is Such A Big Deal
At first glance, the transactoin may seem to be somewhat positive. After all, the company will be trading in debt with CRG at 12.25% for debt at 6.25%. However, the CRG debt started at $125 million. Even if the company still owed this entire amount, it would only represent about half of the money that the company is bringing in through the offering.
Moreover, the general negative side effects of the offering are here. The offering was priced at a steep discount. So, while it immediately takes value from investors already involved in the stock, it provides new comers with an upper hand. Also, it’s worth mentioning that offerings like this are called death spiral transactions for a reason. There is no reason to agree to something like this unless the company is in desparate need of funding. After all, companies like OMER have a fiduciary responsibility to work in the best interest of their investors. So, this tells you that while the transaction isn’t great, it’s better than whatever alternative management had. So, things could be getting pretty rough at OMER.
What We’re Seeing From The Stock
One of the first lessons that we learn when we start to dive into the market is that the news leads to moves. In the case of Omeros, the news proved to be negative. After all, offerings are never a positive and this one is no exception. As is normally the case, our partners at Trade Ideas were the first to alert us to the declines. Currently (9:05), OMER is trading at $14.00 per share after a loss of $2.02 per share or 12.61% so far today.
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What We’ll Be Watching For Ahead
Moving forward, the CNA Finance team will continue to keep a close eye on OMER. In particular, we’re interested in following the story surrounding the company’s use of the funds being raised here since they come with such a high cost to investors. Nonetheless, we’ll continue to follow the story closely and bring the news to you as it breaks!