8-KMaterial AgreementsFinancial EventsSecurities & Listing+2

Cloudflare, Inc. 8-K Report, Material Agreement (Jun 17, 2025)

Filed June 17, 2025For Securities:NET

Summary

Cloudflare, Inc. (NET) has announced the issuance of $2.0 billion aggregate principal amount of 0% Convertible Senior Notes due 2030. These notes are unsecured and rank senior to subordinated debt, but are effectively junior to secured debt and structurally junior to subsidiaries' debt. The conversion price is approximately $247.67 per share, representing a significant premium (45%) to the last reported sale price as of June 12, 2025. The company also engaged in capped call transactions to mitigate potential dilution and cash outflows associated with these notes, with a cap price of approximately $469.73 per share. The net proceeds, approximately $1.971 billion after fees, are intended for general corporate purposes, including working capital, capital expenditures, debt repayment, and strategic transactions. A portion of the proceeds, $283.4 million, was used to fund the capped call transactions. The company also amended its Credit Agreement to adjust leverage ratio calculations, allowing for a higher deduction of unrestricted cash for purposes of certain covenants and debt incurrence tests, particularly relevant as long as its 2026 Notes remain outstanding.

Key Highlights

  • 1Cloudflare issued $2.0 billion in 0% Convertible Senior Notes due 2030.
  • 2The initial conversion price is approximately $247.67 per share, a 45% premium to the prior week's closing price.
  • 3Capped call transactions were entered into to hedge against potential dilution and cash payments upon conversion, with a cap price of approximately $469.73 per share.
  • 4Net proceeds are earmarked for general corporate purposes, including working capital, capital expenditures, debt repayment, and strategic initiatives.
  • 5The company amended its Credit Agreement to allow for a higher deduction of unrestricted cash when calculating the consolidated total net leverage ratio.
  • 6The notes are senior unsecured obligations, ranking pari passu with existing unsecured debt but junior to secured debt.
  • 7The offering was conducted as a private placement under Rule 144A to qualified institutional buyers.

Frequently Asked Questions

The primary purpose is to raise capital for general corporate purposes, which may include working capital, capital expenditures, repayment of outstanding indebtedness, and potential acquisitions and strategic transactions. The company also used a portion of the proceeds to fund capped call transactions, which are designed to mitigate potential dilution and cash outflow risks associated with the notes.

The initial conversion price for the 0% Convertible Senior Notes due 2030 is approximately $247.67 per share. This represents a significant premium of approximately 45% to the last reported sale price of $170.81 per share on June 12, 2025.

Cloudflare entered into Capped Call Transactions concurrently with the note offering. These transactions are designed to offset potential dilution to Class A Common Stock upon conversion of the notes and to reduce any cash payments the company might have to make above the principal amount. The effectiveness of these transactions in mitigating dilution is subject to a cap price of approximately $469.73 per share.

The amendment to the Credit Agreement modifies the calculation of the consolidated total net leverage ratio. It increases the cap on unrestricted cash that can be deducted from consolidated funded indebtedness for the ratio calculation. This provides more flexibility in managing the leverage ratio, especially concerning the ability to incur certain permitted indebtedness, for as long as the 2026 Notes remain outstanding.