Tetra Tech, Inc. (NASDAQ: TTEK), a leading provider of high-end consulting and engineering services, announced today the pricing of $500.0 million aggregate principal amount of 2.25% Convertible Senior Notes due 2028 (the “notes”) in a private placement (the “offering”) only to persons reasonably believed to be qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended (the “Securities Act”). Tetra Tech has also granted the initial purchasers of the notes an option to purchase, during a 13-day period beginning on, and including, the date on which the notes are first issued, up to an additional $75.0 million aggregate principal amount of the notes. The sale of the notes to the initial purchasers is expected to close on August 22, 2023, subject to customary closing conditions.
The notes will be general unsecured obligations of Tetra Tech and will accrue interest payable semiannually in arrears on February 15 and August 15 of each year, beginning on February 15, 2024, at a rate of 2.25% per year. The notes will mature on August 15, 2028, unless earlier converted, redeemed or repurchased.
Tetra Tech estimates that the net proceeds to Tetra Tech from the offering will be approximately $487.1 million (or approximately $560.4 million if the initial purchasers exercise their option to purchase additional notes in full) after deducting the initial purchasers’ discounts and commissions and estimated offering expenses payable by Tetra Tech. Tetra Tech expects to use the net proceeds from the offering to pay $45.0 million for the cost of the capped call transactions described below and to repay all $185.0 million principal amount outstanding under its revolving credit facility, the remaining $234.0 million principal amount outstanding under its senior secured term loan due 2027 and approximately $23.1 million principal amount outstanding under its senior secured term loan due 2026 (the “2026 Term Loan”). If the initial purchasers exercise their option to purchase additional notes, Tetra Tech expects to use a portion of the net proceeds from the sale of the additional notes to enter into additional capped call transactions with the option counterparties (as defined below) and to repay additional principal amounts outstanding under the 2026 Term Loan.
The notes will be convertible at the option of the holders in certain circumstances. Upon conversion, Tetra Tech will pay cash up to the aggregate principal amount of the notes to be converted and pay or deliver, as the case may be, cash, shares of Tetra Tech’s common stock or a combination of cash and shares of Tetra Tech’s common stock, at Tetra Tech’s election, in respect of the remainder, if any, of Tetra Tech’s conversion obligation in excess of the aggregate principal amount of the notes being converted.
The conversion rate will initially be 5.0855 shares of Tetra Tech’s common stock per $1,000 principal amount of notes (equivalent to an initial conversion price of approximately $196.64 per share of Tetra Tech’s common stock). The initial conversion price represents a premium of approximately 25.0% over the last reported sale price of $157.31 per share of Tetra Tech’s common stock on August 17, 2023. The conversion rate will be subject to adjustment in some events but will not be adjusted for any accrued and unpaid interest. In addition, following certain corporate events that occur prior to the maturity date or if Tetra Tech delivers a notice of redemption, it will, in certain circumstances, increase the conversion rate for a holder who elects to convert its notes in connection with such a corporate event or convert its notes called (or deemed called) for redemption in connection with such notice of redemption, as the case may be.
Tetra Tech may not redeem the notes prior to August 20, 2026. Tetra Tech may redeem for cash all or any portion of the notes (subject to certain limitations), at its option, on or after August 20, 2026 if the last reported sale price of Tetra Tech’s 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 30 consecutive trading day period (including the last trading day of such period) ending on, and including, the trading day immediately preceding the date on which Tetra Tech 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 excluding, the redemption date.
If Tetra Tech undergoes a “fundamental change” (as defined in the indenture that will govern the notes) then, subject to certain conditions and exceptions, holders may require Tetra Tech to repurchase for cash all or any portion of their notes at a fundamental change repurchase price equal to 100% of the principal amount of the notes to be repurchased, plus accrued and unpaid interest to, but excluding, the fundamental change repurchase date.
In connection with the pricing of the notes, Tetra Tech entered into privately negotiated capped call transactions with certain of the initial purchasers or affiliates thereof and/or other financial institutions (the “option counterparties”). The capped call transactions cover, subject to customary adjustments substantially similar to those applicable to the notes, the number of shares of Tetra Tech’s common stock initially underlying the notes. The capped call transactions are expected generally to reduce the potential dilution to Tetra Tech’s common stock upon any conversion of notes and/or offset any cash payments Tetra Tech is required to make in excess of the principal amount of converted notes, as the case may be, with such reduction and/or offset subject to a cap.
The cap price of the capped call transactions relating to the notes will initially be approximately $259.56, which represents a premium of 65.0% over the last reported sale price of Tetra Tech’s common stock on the Nasdaq Global Select Market on August 17, 2023, and is subject to certain adjustments under the terms of the capped call transactions.
In connection with establishing their initial hedges of the capped call transactions, Tetra Tech expects the option counterparties or their respective affiliates will enter into various derivative transactions with respect to Tetra Tech’s common stock and/or purchase shares of Tetra Tech’s common stock concurrently with or shortly after the pricing of the notes. This activity could increase (or reduce the size of any decrease in) the market price of Tetra Tech’s common stock or the notes at that time.
In addition, the option counterparties or their respective affiliates may modify their hedge positions by entering into or unwinding various derivatives with respect to Tetra Tech’s common stock and/or purchasing or selling Tetra Tech’s common stock or other securities of Tetra Tech in secondary market transactions following the pricing of the notes and prior to the maturity of the notes (and are likely to do so during any observation period related to conversion of notes, or, to the extent Tetra Tech exercises the relevant election under the capped call transactions, following any repurchase or redemption of the notes). This activity could also cause or avoid an increase or a decrease in the market price of Tetra Tech’s common stock or the notes which could affect the ability of a holder of notes to convert the notes and, to the extent the activity occurs during any observation period related to a conversion of notes, this could affect the number of shares and value of the consideration, if any, that a holder of notes will receive upon conversion of its notes.
The notes were only offered to persons reasonably believed to be qualified institutional buyers pursuant to Rule 144A promulgated under the Securities Act by means of a private offering memorandum. The notes and any shares of Tetra Tech’s common stock issuable upon conversion of the notes have not been and will not be registered under the Securities Act, any state securities laws or the securities laws of any other jurisdiction, and unless so registered, may not be offered or sold in the United States absent registration or an applicable exemption from, or in a transaction not subject to, the registration requirements of the Securities Act and other applicable securities laws.
This press release is neither an offer to sell nor a solicitation of an offer to buy any of these securities nor shall there be any sale of these securities in any state or jurisdiction in which such an offer, solicitation or sale would be unlawful prior to the registration or qualification thereof under the securities laws of any such state or jurisdiction.
