| Item 1.01 | Entry into a Material Definitive Agreement. |
On December 8, 2023, Sphere Entertainment Co. (the “Company”) completed a private unregistered offering (the “Offering”) of $258.75 million aggregate principal amount of its 3.50% convertible senior notes due 2028 (the “Notes”), which amount includes the full exercise of the initial purchasers’ option to purchase additional Notes.
The Company used approximately $14.3 million of the net proceeds from the Offering to fund the cost of entering into the capped call transactions described below and intends to use the remaining net proceeds from the Offering for general corporate purposes, including capital for Sphere-related growth initiatives.
Indenture
On December 8, 2023, the Company entered into an Indenture (the “Indenture”), dated as of December 8, 2023, with U.S. Bank Trust Company, National Association, as trustee (the “Trustee”), relating to the issuance of the Notes.
The Notes bear interest at a rate of 3.50% per year, payable semi-annually in arrears on June 1 and December 1 of each year, beginning on June 1, 2024. The Notes will mature on December 1, 2028, unless earlier redeemed, repurchased or converted.
Subject to the terms of the Indenture, the Notes may be converted at an initial conversion rate of 28.1591 shares of Class A common stock, par value $0.01 per share, of the Company (“Class A Common Stock”) per $1,000 principal amount of Notes (equivalent to an initial conversion price of approximately $35.51 per share of Class A Common Stock). Upon conversion of the Notes, the Company will pay or deliver, as the case may be, cash, shares of Class A Common Stock or a combination of cash and shares of Class A Common Stock, at the Company’s election, in accordance with the Indenture. Holders of the Notes may convert their Notes at their option at any time on or after September 1, 2028 until the close of business on the second scheduled trading day immediately preceding the maturity date. Holders of the Notes will also have the right to convert the Notes prior to September 1, 2028, but only upon the occurrence of specified events described in the Indenture. The conversion rate is subject to anti-dilution adjustments if certain events occur.
Prior to December 6, 2026, the Notes will not be redeemable. On or after December 6, 2026, the Company may redeem for cash all or part of the Notes (subject to certain exceptions), at its option, if the last reported sale price of the Class A Common Stock has been at least 130% of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any period of 30 consecutive trading days (including the last trading day of such period) ending on, and including, the trading day immediately preceding the date on which the Company provides notice of redemption at a redemption price equal to 100% of the principal amount of the Notes to be redeemed, plus accrued and unpaid interest to, but not including, the redemption date. No sinking fund is provided for the Notes.
If certain corporate events occur (each defined in the Indenture as a “Make-Whole Fundamental Change”), or the Company delivers a notice of redemption prior to the maturity date of the Notes, and a holder elects to convert its Notes in connection with such corporate event or notice of redemption, as the case may be, the Company will, under certain circumstances, increase the conversion rate for the Notes so surrendered for conversion by a number of additional shares of Class A Common Stock in accordance with the Indenture. No adjustment to the conversion rate will be made if the price paid or deemed to be paid per share of Class A Common Stock in such corporate event or redemption, as the case may be, is either less than $28.41 per share or exceeds $280.00 per share.
If a specified “Fundamental Change” (as defined in the Indenture) occurs prior to the maturity date of the Notes, under certain circumstances each holder may require the Company to repurchase all or part of its Notes at a repurchase price equal to 100% of the principal amount, plus accrued and unpaid interest to, but not including, the repurchase date.
Under the Indenture, the Notes may be accelerated upon the occurrence of certain events of default. In the case of an event of default with respect to the Notes arising from specified events of bankruptcy or insolvency of the Company, 100% of the principal of and accrued and unpaid interest on the Notes will automatically become due and payable. If any other event of default with respect to the Notes under the Indenture occurs or is continuing, the Trustee or holders of at least 25% in aggregate principal amount of the then outstanding Notes may declare the principal amount of the Notes to be immediately due and payable.
The description of the Indenture is a summary and is qualified in its entirety by reference to the complete text of the Indenture, a copy of which is filed as Exhibit 4.1 hereto and is incorporated herein by reference.
