Brookdale Senior Living Inc. (NYSE: BKD) (the "Company") announced today that it has priced its previously announced underwritten public offering of $275 million aggregate principal amount of 2.75% Convertible Senior Notes due 2018 (the "Notes"). The Company anticipates that the offering will close on or around June 14, 2011, subject to customary closing conditions. In addition, the Company has granted the underwriters a 13-day option to purchase up to an additional $41.25 million of the Notes sold solely to cover over-allotments.
The Notes will be convertible into cash, shares of the Company's common stock, par value $0.01 per share, or a combination of cash and shares, at the Company's option, based on an initial conversion rate of 34.1006 shares of the Company's common stock per $1,000 principal amount of Notes, which is equivalent to an initial conversion price of approximately $29.325 per share of the Company's common stock. While this represents an approximately 27.5% conversion premium over the closing price of the Company's common stock on June 8, 2011 of $23.00 per share, the effect of the convertible note hedge and warrant transactions described below will be to increase the effective conversion premium of the Notes to 75% above today's closing price of the Company's common stock, or to $40.25 per share. The conversion rate and the conversion price will be subject to customary anti-dilution adjustments upon occurrence of certain events, such as distributions of dividends or stock splits.
The Company intends to use a portion of the net proceeds of the offering to pay the Company's cost of the convertible note hedge transactions described below, taking into account the proceeds to the Company of the warrant transactions described below, and to use the balance of the net proceeds of the offering (i) to repay, together with the proceeds from a proposed mortgage loan, a portion of the Company's outstanding mortgage indebtedness, (ii) to pay fees and expenses related to the offering of the Notes, and (iii) for general corporate purposes.
Concurrently with the pricing of the Notes, the Company has entered into privately negotiated convertible note hedge transactions with certain financial institutions (the "hedge counterparties"). The strike price of the convertible note hedge transactions is equal to the initial conversion price of the Notes. The convertible note hedge transactions will cover, subject to customary anti-dilution adjustments, the number of shares of the Company's common stock that will initially underlie the Notes, and are intended to reduce the dilutive impact of the conversion feature of the Notes on the Company's outstanding shares of common stock. The Company has also entered into privately negotiated warrant transactions with the hedge counterparties initially relating to the same number of shares of the Company's common stock and having a strike price of $40.25 per share, subject to customary anti-dilution adjustments, which is 75% higher than the closing price of the Company's common stock on June 8, 2011. The warrant transactions could have a dilutive effect to the extent that the price per share of the Company's common stock exceeds the applicable strike price of the warrant. If the underwriters exercise their over-allotment option to purchase additional Notes, the Company expects to increase the number of shares underlying the convertible note hedge transactions and the warrant transactions, in each case on a pro rata basis.