Why is Vertex Pharmaceuticals calling its 2015 convertible notes for redemption?

Vertex Pharmaceuticals is calling the notes for redemption because the closing price of its common stock has exceeded $63.47 for at least 20 trading days within a 30-day period, as permitted by the terms of the bond indenture. This signifies a strong stock performance that allows the company to exercise this provision.

What are my options as a holder of these 3.35% Convertible Senior Subordinated Notes due 2015?

As a holder of these notes, you have two primary options. You can choose to convert your notes into Vertex Pharmaceuticals common stock at a rate of approximately $48.83 per share (plus a make-whole interest payment in stock) at any time before June 14, 2013. Alternatively, you can hold onto your notes until the redemption date of June 17, 2013, at which point the company will redeem them at 100% of the principal amount plus a make-whole interest payment in stock.

What is a 'make-whole' payment, and how will it be paid?

A 'make-whole' payment is essentially an additional amount of interest the company must pay to noteholders if the notes are redeemed or converted. This payment is designed to compensate noteholders for the interest they will forgo due to the early redemption or conversion. In this case, the make-whole payment will be paid in shares of Vertex Pharmaceuticals' common stock, calculated based on a specified formula related to the stock's trading price.

How many shares of Vertex Pharmaceuticals stock might be issued as a result of this event?

If all outstanding 2015 Convertible Senior Subordinated Notes are converted into common stock, Vertex Pharmaceuticals expects to issue approximately 8.3 million shares. This figure includes shares issued for both the principal conversion and the make-whole interest payments.

VRTX 8-K: Financial Events & Securities & Listing

Summary

Vertex Pharmaceuticals Inc. (VRTX) announced on May 17, 2013, that it has called for the redemption of its $400.0 million aggregate principal amount of 3.35% Convertible Senior Subordinated Notes due 2015. This action was triggered by the common stock price exceeding a specified threshold for a required number of trading days, as permitted by the indenture. The redemption is scheduled for June 17, 2013. Investors should note that holders of these notes have the option to convert them into VRTX common stock prior to June 14, 2013, at a conversion rate of approximately $48.83 per share. The redemption price will include the principal amount plus a make-whole interest payment, which will be paid in shares of VRTX common stock. The company expects to issue approximately 8.3 million shares if all notes are converted. The redemption will be funded by existing cash, cash equivalents, and marketable securities.

Key Highlights

1VRTX has called for redemption of $400.0 million in 3.35% Convertible Senior Subordinated Notes due 2015, effective June 17, 2013.
2The redemption was initiated due to VRTX's common stock price exceeding $63.47 for at least 20 trading days within a 30-day period.
3Noteholders have the right to convert their notes into VRTX common stock at a conversion price of approximately $48.83 per share until June 14, 2013.
4A 'make-whole' interest payment will be made in shares of VRTX common stock to any remaining noteholders on the redemption date.
5If all convertible notes are converted, approximately 8.3 million shares of VRTX common stock will be issued.
6The redemption and any potential conversions will be funded using existing cash, cash equivalents, and marketable securities.
7The issuance of common stock upon conversion is exempt from registration under Section 3(a)(9) of the Securities Act of 1933.

VERTEX PHARMACEUTICALS INC / MA 8-K Report, Triggering Event (May 17, 2013)

Summary

Key Highlights

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