GAIN Capital shares trade down by 12% after pricing $80 million Convertible Notes offering

Gain Capital

Shares of FX brokerage group Gain Capital Holdings Inc (NYSE:GCAP), the parent company of Retail FX broker and institutional FX platform GTX, were down sharply on Thursday morning NYSE trading after the company announced it had successfully priced an $80 million Convertible Notes offering, which we first reported last night.

GCAP shares were at $6.04 per share as of the time of writing (10:30am EDT), down 11% from yesterday’s closing price of $6.83, after trading as low as $5.77 soon after open.

It isn’t unusual for the shares of a company to trade off after pricing an equity or equity-linked financing instrument, especially a convertible note offering, due to the dilutive nature of the financing. GAIN Capital had put in an anti-dilutive provision into the offering, by using $14.5 million of the offering proceeds to repurchase its own stock, but it looks like that it might not have worked as intended in this case.

The underwriters, led by JP Morgan and Jefferies LLC, priced the five-year notes with a 5% coupon and a conversion price of $8.20 per share. The total offering size could be increased to $92 million, if the underwriters exercise their “greenshoe” over-allotment option. They have 30 days to do so.

The full announcement on the pricing of its convertible notes offering made by GAIN Capital reads as follows:

GAIN Capital Prices $80 Million of Convertible Senior Notes Due 2022

BEDMINSTER, N.J., Aug. 17, 2017 /PRNewswire/ — GAIN Capital Holdings, Inc. (NYSE: GCAP) (“GAIN Capital”) announced today the pricing of its offering of $80 million aggregate principal amount of 5.00% Convertible Senior Notes due 2022 in a private placement to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended (the “Act”). GAIN Capital also granted the initial purchasers of the notes a 30-day option to purchase up to an additional $12 million aggregate principal amount of notes solely to cover over-allotments, if any. The sale of the notes is expected to close on August 22, 2017, subject to customary closing conditions.

GAIN Capital expects that the net proceeds from the offering will be approximately $77.4 million, or $89.0 million if the initial purchasers exercise the option to purchase additional notes in full, after deducting discounts to the initial purchasers but prior to taking into account any estimated offering expenses payable by GAIN Capital.

GAIN Capital has agreed to repurchase approximately $14.5 million of its common stock from purchasers of notes in the offering in privately negotiated transactions effected through J.P. Morgan concurrently with the closing of the offering, which repurchases may be made using a portion of the net proceeds of the offering, amounts drawn under GAIN Capital’s existing credit agreement or other cash on hand or any combination thereof. The purchase price per share of GAIN Capital common stock repurchased by GAIN Capital equals the closing price per share of its common stock on August 16, 2017, which was $6.83 per share. These repurchases could increase, or prevent a decrease in, the market price of GAIN Capital common stock or the notes and could result in a higher effective conversion price for the notes.

GAIN Capital intends to use a portion of the net proceeds of the offering to repay outstanding indebtedness and the balance for general corporate purposes, which may include strategic acquisitions and share repurchases.

The notes will be unsecured, senior obligations of GAIN Capital and will bear interest at a fixed rate of 5.00% per year, payable semi-annually in arrears on February 15 and August 15 of each year, beginning on February 15, 2018. The notes will be convertible at the option of holders prior to the close of business on the business day immediately preceding April 15, 2022 only upon the occurrence of specified events or under certain circumstances. Thereafter, until the close of business on the business day immediately preceding the maturity date of August 15, 2022, the notes will be convertible at any time. Conversions of the notes will be settled by the delivery and/or payment, as the case may be, of GAIN Capital common stock, cash, or a combination thereof, at GAIN Capital’s election. The conversion rate will initially be 122.0107 shares of GAIN Capital’s common stock per $1,000 principal amount of the notes (equivalent to an initial conversion price of approximately $8.20 per share of GAIN Capital common stock). The conversion rate and the corresponding conversion price will be subject to adjustment in some events but will not be adjusted for any accrued and unpaid interest.

If GAIN Capital undergoes a fundamental change (as defined in the indenture governing the notes), holders may require GAIN Capital to repurchase for cash all or part of their notes at a purchase price equal to 100% of the principal amount of the notes to be repurchased, plus accrued and unpaid interest to, but excluding, the fundamental change repurchase date. In addition, if a make-whole fundamental change (as defined in the indenture governing the notes) occurs, GAIN Capital may be required in certain circumstances to increase the conversion rate for any notes converted in connection with such make-whole fundamental change by a specified number of shares of its common stock.

J.P. Morgan and Jefferies acted as joint book-running managers of the offering.

This press release is neither an offer to sell nor a solicitation of an offer to buy any of these securities and shall not constitute an offer, solicitation, or sale in any jurisdiction in which such offer, solicitation, or sale is unlawful. Any offer of the securities will be made only by means of a private offering memorandum. The notes and the shares of common stock issuable upon conversion of the notes, if any, will not be registered under the Act or any state securities laws, and unless so registered, may not be offered or sold in the United States except pursuant to an exemption from the registration requirements of the Act and applicable state laws.

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