The Cheesecake Factory Incorporated (NASDAQ: CAKE) has announced its intention to offer $450 million in aggregate principal amount of convertible senior notes due 2030 (the “notes”) through a private offering. The offering will be made to qualified institutional buyers under Rule 144A of the Securities Act of 1933, as amended. Additionally, the company expects to grant the initial purchasers an option to acquire up to an additional $67.5 million in notes, which can be exercised within 13 days from the initial issuance date.
Key Terms of the Notes Offering
The notes will be senior, unsecured obligations of The Cheesecake Factory, accruing interest payable semi-annually in arrears. The maturity date is set for March 15, 2030, unless the notes are repurchased, redeemed, or converted earlier. Under certain conditions and during specified periods, holders of the notes will have the right to convert them. Upon conversion, The Cheesecake Factory will settle the obligations in cash and, if applicable, shares of its common stock.
The notes may be redeemed, either in whole or in part, at The Cheesecake Factory’s discretion beginning March 20, 2028, and up until the 35th scheduled trading day before the maturity date. Redemption can only occur if the company’s common stock price exceeds 130% of the conversion price over a predetermined period, and other specified conditions are met. If the company chooses to redeem the notes, the redemption price will be equal to the principal amount plus accrued and unpaid interest up to, but excluding, the redemption date.
Repurchase in the Event of a Fundamental Change
In the event of certain corporate transactions classified as a “fundamental change,” noteholders will have the right to require The Cheesecake Factory to repurchase their notes for cash. The repurchase price will be equal to the principal amount of the notes, plus any accrued and unpaid interest up to the repurchase date, subject to limited exceptions.
The final terms of the offering, including the interest rate and the initial conversion rate, will be determined upon the pricing of the transaction.
Use of Proceeds
The Cheesecake Factory intends to allocate up to $130 million of the net proceeds from the offering to repurchase shares of its common stock in privately negotiated transactions. These transactions will take place concurrently with the pricing of the notes and will be executed through one of the initial purchasers or its affiliates acting as the company’s agent.
Additionally, part of the net proceeds will be used to repurchase a portion of The Cheesecake Factory’s outstanding 0.375% Convertible Senior Notes due 2026 (the “2026 Notes”). This repurchase will also be conducted through private transactions executed by one of the initial purchasers or its affiliates acting as the company’s agent. Any remaining proceeds will be utilized for general corporate purposes, which may include repaying outstanding debt under the company’s revolving credit facility.
Potential Market Impact
Investors holding the 2026 Notes that are repurchased may choose to buy shares of The Cheesecake Factory’s common stock in the open market to unwind existing hedge positions. These market activities could influence the trading price of the company’s common stock. If such purchases are made concurrently with the offering, they could lead to an increased initial conversion price for the new notes.
Moreover, the company’s plan to repurchase shares of its common stock as part of this offering could cause its stock price to trade at elevated levels, potentially resulting in a higher initial conversion price for the notes.
Regulatory Compliance and Restrictions
The notes and any shares of common stock issued upon conversion will not be registered under the Securities Act or any other securities laws. As a result, these securities cannot be publicly offered or sold unless an exemption from registration applies. This press release does not constitute an offer to sell or solicit an offer to buy the notes or any shares of common stock upon conversion. Additionally, the notes and any such shares will not be offered or sold in any jurisdiction where such an offer, sale, or solicitation would be unlawful.
