Spotify USA intends to offer $1.3 billion in exchangeable notes due in 2026, the company announced Wednesday. In addition, Spotify USA expects to grant the initial buyers of the notes an option to purchase an additional $200 million.
While some music companies have taken on debt during the pandemic — including Live Nation and Madison Square Garden Entertainment — or sold notes to replace existing debt, Spotify has operated and acquired companies with cash on hand. During 2020, Spotify had $259 million in cash from operations and posted a net increase of $172 million in cash and cash equivalents. Its balance sheet had cash and cash equivalents of $1.15 billion of cash and cash equivalents and no long-term debt.
Exactly how Spotify intends to use the money is unclear. The press release broadly states the company intends to use the proceeds for “general corporate purposes” — a term loose enough to cover capital expenditures, marketing or strategic acquisitions. Such a large amount suggests Spotify doesn’t intend to use the money for everyday costs of running the company. Instead, $1.3 billion is enough to make numerous acquisitions to build out its podcasting business, for example, and have a cushion for any uncertainty its leadership foresees in 2021 and beyond.
Spotify will reserve the right to redeem the notes in a variety of scenarios. Until March 20, 2024, Spotify has the option to redeem the notes with cash, shares or a combination of the two if the company’s share price “exceeds 130% of the exchange price for a period of time.” Spotify USA can also redeem the notes “at any time in connection with certain changes in tax law.”