OSI turns to US$500m CB as bank debt alternative
OSI Systems raised an upsized US$500m last week from the sale of new convertible bonds but stumbled in the aftermarket, despite the use of a happy meal share repurchase designed to facilitate delta hedging.
The airport security and medical device maker’s shares fell 2.4% while the new CBs were being marketed on Monday and another 5.9% post-pricing on Tuesday, despite the simultaneous share repurchase designed to blunt the impact on the underlying shares.
Bank of America, JP Morgan, Wells Fargo, Morgan Stanley and Goldman Sachs were joint bookrunners on the pricing of the new 6.25-year CBs at a coupon and conversion premium of 0.5% and 32.5%, the aggressive-ends of 0.5%–1% and 27.5%–32.5% price talk.
HudsonWest was independent adviser.
OSI spent US$146.1m of the proceeds to buy back 546,945 shares to allow arbs to hedge downside exposure. That was slightly less than the up to US$175m the company had committed to purchase on a deal originally sized at US$400m.
“There was a lot of long-only, outright demand,” said one banker involved in the offering. “This is a good company with solid fundamentals.”
Perhaps the upsize was a bit too much, although pricing of CB new issues has become trickier against a backdrop of a market in selloff.
Less than two weeks since pricing, Cleanspark’s US$1.15bn 6.25-year zero-percent coupon CB offering is trading at 75, tracking the 25%-plus decline in the underlying shares since the deal was issued. The bitcoin-turned-high performance computing lessor has been hard hit by plunging crypto prices.
For OSI, the new CB is the latest in a string of opportunistic financings designed as a lower cost alternative to bank debt. The company, which did a similar CB-plus-happy meal in August last year, is using the proceeds ex-buyback to repay the US$252.1m drawn on a revolving credit facility on which it pays SOFR +125bp, or about 5.25%.
OSI is coming off a beat-and-raise fiscal Q1 2026 that saw it report adjusted EPS of US$1.42 while growing revenues by 11.8% to US$385m. The company raised full-year 2026 EPS and revenue guidance to US$10.20–$10.48 and US$1.825bn–$1.867bn, from US$10.11–$10.39 and US$1.805bn–$1.85bn previously.
The company finished the quarter with a record US$1.9bn backlog.