Investing.com -- Shares of Alphatec Holdings (NASDAQ: ATEC ) tumbled 9.5% after the company announced its plans to offer $300 million in convertible senior notes due 2030, with an additional purchase option of up to $50 million for the initial buyers. The move is seen as a potential dilution of equity, causing concern among investors.

The medical technology firm, specializing in spine surgery innovations, revealed that the notes will be senior, unsecured obligations, accruing interest payable semi-annually and maturing on March 15, 2030, unless repurchased, redeemed, or converted earlier. The terms, including the interest rate and initial conversion rate, will be established upon the pricing of the offering.

In a strategy to mitigate dilution from the conversion of the notes and to offset potential cash payments above the principal amount, Alphatec intends to enter into capped call transactions. These financial instruments are designed to reduce the impact on the company’s common stock by capping the potential dilution and/or cash payment obligations.

The capped call transactions may influence Alphatec’s stock price as the option counterparties establish initial hedges. They are expected to buy ATEC shares or engage in derivative transactions with the company’s stock around the time of the notes’ pricing. Such activities could affect the stock’s market price, impacting the notes’ conversion value and potentially the number of shares to be received upon conversion.

Alphatec plans to allocate a portion of the proceeds from this offering to fund the capped call transactions, repurchase a portion of its outstanding 0.75% convertible senior notes due 2026, and use the remainder for general corporate purposes. If the option to purchase additional notes is exercised, further funds will be directed towards additional capped call transactions.

The notes are being offered exclusively to qualified institutional buyers, with the offering and any resulting common stock issuance upon conversion exempt from registration under the Securities Act of 1933. This approach highlights the company’s intent to comply with securities laws while raising capital for its strategic initiatives.

The announcement has led to a notable decrease in Alphatec’s stock price as investors weigh the potential risks associated with the convertible notes offering and its implications for the company’s financial structure and stock value.

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