DigitalOcean Announces Proposed Offering of $500 Million Convertible Senior Notes Due 2030
DigitalOcean Holdings, Inc. (NYSE: DOCN), a leading cloud platform for developers and small to medium-sized businesses, has announced its intention to offer $500 million aggregate principal amount of convertible senior notes due 2030 (the “notes”) in a private placement. The offering will target qualified institutional buyers under Rule 144A of the Securities Act of 1933, as amended. The company also plans to grant initial purchasers an option to purchase up to an additional $75 million in notes within 13 days of issuance.
The notes will serve as senior, unsecured obligations of DigitalOcean, accruing interest payable semi-annually. They are set to mature on August 15, 2030, unless earlier converted, redeemed, or repurchased by the company. Noteholders will have the right to convert their notes under specific circumstances and during designated periods. Upon conversion, DigitalOcean may settle in cash, shares of its common stock, or a combination of both, at its discretion. Importantly, the notes will not be redeemable before August 15, 2028. After that date, the company may redeem the notes, subject to certain conditions, if the price of its common stock exceeds 130% of the conversion price over a specified period. Key terms, including the interest rate and initial conversion rate, will be finalized at the time of pricing.
DigitalOcean intends to allocate the net proceeds from the offering to several strategic priorities. A portion of the funds will cover the cost of capped call transactions designed to mitigate potential dilution upon conversion of the notes. The remainder will be used, alongside existing cash reserves and up to $500 million in term loans from its credit facility, to repurchase a portion of its existing 0.00% convertible senior notes due 2026 (the “2026 notes”). If the initial purchasers exercise their option to purchase additional notes, any extra proceeds will be directed toward additional capped call transactions and general corporate purposes, such as working capital, operating expenses, and capital expenditures.
To manage potential dilution, DigitalOcean plans to enter into privately negotiated capped call transactions with one or more financial institutions. These agreements will cover a number of shares equivalent to those underlying the notes, subject to customary adjustments. The capped call transactions are expected to reduce dilution to common stockholders or offset excess cash payments in the event of note conversions, up to a predetermined cap. If additional notes are issued, DigitalOcean will extend the capped call transactions accordingly.
In connection with establishing their initial hedges for the capped call transactions, counterparties or their affiliates may engage in derivative transactions or purchase shares of DigitalOcean’s common stock concurrently with or shortly after the pricing of the notes. This activity could influence the market price of the company’s stock or the notes. Additionally, counterparties may adjust their hedge positions through further derivative transactions or by buying or selling shares of DigitalOcean’s stock in secondary markets. Such actions could impact the market price of the stock or notes, potentially affecting note conversion terms and outcomes.
DigitalOcean also plans to repurchase a portion of its 2026 notes through privately negotiated transactions, using proceeds from the offering, cash on hand, and term loans. The repurchase terms will vary based on market conditions and other factors. Holders of the 2026 notes who have hedged their equity risk may unwind these positions by purchasing shares or entering into derivative transactions, which could influence the stock’s market price.
Concurrently with the offering, DigitalOcean intends to adopt a new stock repurchase program authorizing the buyback of up to $100 million of its common stock. Repurchases will occur opportunistically, either on the open market or through negotiated transactions, and may utilize methods such as open market purchases or a 10b5-1 plan. The program is set to expire on July 31, 2027, and is subject to market conditions and regulatory requirements.
It is important to note that the notes and any shares issuable upon conversion have not been registered under the Securities Act or state securities laws. As such, they cannot be offered or sold in the United States without registration or an applicable exemption. This announcement does not constitute an offer to sell or a solicitation to buy any securities, nor shall there be any sale in jurisdictions where such an offer, solicitation, or sale would be unlawful prior to registration or qualification under applicable securities laws.
Through this proposed offering, DigitalOcean aims to strengthen its financial position, optimize its capital structure, and create long-term value for shareholders. By addressing the maturity of its 2026 notes and implementing measures to minimize dilution, the company is positioning itself for sustained growth and operational flexibility in an increasingly competitive market.
About DigitalOcean
DigitalOcean is the simplest scalable cloud platform that democratizes cloud and AI for digital native enterprises around the world. Our mission is to simplify cloud computing and AI to allow builders to spend more time creating software that changes the world. More than 600,000 customers trust DigitalOcean to deliver the cloud, AI, and ML infrastructure they need to build and scale their organizations.
