Summary
Take-Two Interactive Software, Inc. (TTWO) filed an 8-K on June 12, 2013, primarily to report on the termination of their convertible note hedge and warrant transactions with JPMorgan Chase Bank and Barclays Bank PLC. These derivative instruments were originally put in place in 2009 in connection with the issuance of 4.375% Senior Convertible Notes due 2014. The termination, referred to as an "unwind," is occurring in conjunction with the company's decision to redeem all of its outstanding convertible notes.
Key Highlights
- 1Termination of convertible note hedge and warrant transactions with JPMorgan Chase Bank and Barclays Bank PLC.
- 2These derivative transactions were related to the 4.375% Senior Convertible Notes Due 2014.
- 3The company is redeeming all outstanding 4.375% Senior Convertible Notes Due 2014.
- 4The redemption date for the convertible notes is scheduled for August 29, 2013.
- 5The unwind of the derivative contracts will involve cash payments based on their current fair market value.
- 6The company has the right to terminate these transactions early, prior to the note redemption date.
- 7A press release regarding the notice of redemption was also issued and filed with the SEC.
Frequently Asked Questions
The primary purpose of this 8-K filing is to report the termination (unwind) of Take-Two Interactive's convertible note hedge and warrant transactions with its financial counterparties, JPMorgan Chase Bank and Barclays Bank PLC. This action is directly linked to the company's decision to redeem its outstanding 4.375% Senior Convertible Notes due 2014.
Convertible note hedge transactions are typically used by a company to limit its potential dilution when issuing convertible debt. In this case, Take-Two purchased call options on its own stock to offset the potential equity dilution if the convertible notes were converted. Warrant transactions involve the company selling call options, which can generate proceeds but also obligate the company to issue shares at a certain price if exercised.
The 8-K filing does not explicitly state the reason for the redemption. However, companies typically redeem convertible notes when market conditions or their financial position change, making it more advantageous to pay off the debt rather than allow it to remain outstanding or be converted, potentially at a price that is no longer favorable.
The unwind will result in cash payments between Take-Two and the hedge counterparties. The company expects to receive a cash payment from the counterparties for the termination of the convertible note hedge transactions, calculated based on their fair market value. Conversely, Take-Two will owe a cash payment to the counterparties for the termination of the warrant transactions, also based on fair market value.