What is a "Corporate Unit" offered by Southern Company?

A Corporate Unit is a financial instrument offered by Southern Company that bundles three components: a stock purchase contract to buy shares of SO common stock by August 1, 2022, and beneficial ownership interests in two series of junior subordinated notes (RSNs) due in 2024 and 2027. The units were sold at a stated amount of $50 each.

What is the purpose of the stock purchase contract within the Corporate Unit?

The stock purchase contract requires the holder to purchase a certain number of Southern Company's common stock shares for $50 in cash at a future date, no later than August 1, 2022. This creates a forward commitment for investors to acquire SO equity.

How are the junior subordinated notes (RSNs) used in this offering?

The RSNs are part of the Corporate Unit and provide a portion of the investor's annual return. Crucially, they are pledged as collateral to secure the holder's obligation to purchase the common stock through the stock purchase contract. The RSNs are also "remarketable," meaning their terms may be adjusted before the settlement date of the stock purchase contracts.

What is the total return an investor can expect from these Corporate Units?

The Corporate Units are designed to provide a total annual distribution rate of 6.75% of their stated amount. This is comprised of quarterly contract adjustment payments of 4.05% per year and annual interest payments from the RSNs totaling 2.70% per year.

SOUTHERN CO 8-K SEC Disclosure

Summary

Southern Company (SO) announced the completion of a significant equity offering on August 16, 2019, raising substantial capital through the sale of 34,500,000 Corporate Units. Each unit, valued at $50, is structured as a composite of a stock purchase contract obligating the holder to buy SO common stock by August 1, 2022, and beneficial ownership interests in two series of remarketable junior subordinated notes (RSNs) due in 2024 and 2027. This offering, fully underwritten and including an exercised over-allotment option, was registered under the company's existing shelf registration statement, indicating a strategic move to bolster its financial position and fund future operations. The structure of the Corporate Units provides investors with a dual return: an annual distribution rate of 6.75%, composed of quarterly contract adjustment payments (4.05%) and interest from the RSNs (2.70%). Importantly, the RSNs are pledged as collateral to secure the obligation to purchase the company's common stock, mitigating some of the risk associated with the forward purchase agreement. This complex financial instrument aims to enhance Southern Company's capital structure while offering investors a potentially attractive yield with a forward commitment to acquire SO equity.

Key Highlights

1Southern Company completed a public offering of 34,500,000 "Corporate Units" on August 16, 2019.
2Each Corporate Unit has a stated amount of $50 and consists of a stock purchase contract, and beneficial interests in two series of junior subordinated notes (RSNs).
3The stock purchase contracts obligate holders to purchase shares of Southern Company's common stock by August 1, 2022.
4The RSNs are pledged as collateral to secure the future stock purchase obligation.
5The Corporate Units offer a total annual distribution rate of 6.75% (4.05% from contracts, 2.70% from RSNs).
6The offering included an over-allotment option for an additional 4,500,000 Corporate Units, which was fully exercised.
7The offering was conducted under the company's existing shelf registration statement.

SOUTHERN CO 8-K Report, Corporate Update (Aug 16, 2019)

Summary

Key Highlights

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