DigitalOcean Prices Upsized $550 Million Convertible Senior Notes Offering

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08/12/2025 – 01:33 AM

BROOMFIELD, Colo. – DigitalOcean (NYSE: DOCN) is making waves with a cleverly structured move in the debt markets. The cloud platform provider just announced the pricing of $550 million in convertible senior notes due in 2030 in a private offering to qualified institutional buyers, a notable increase from the previously announced $500 million. Think of it as DigitalOcean seizing an opportunity to capitalize on investor appetite.

The deal, expected to close on August 14, includes an option for the initial purchasers to grab an additional $75 million – a nice potential kicker for DigitalOcean’s coffers. The zero-coupon notes are unsecured and won’t accrue interest, a feature that lowers DigitalOcean’s immediate cash burden.

Here’s where the financial engineering gets interesting. DigitalOcean expects to net around $532.4 million (or $605.6 million if the underwriters fully exercise their option). A portion of this – $73.81 million – is earmarked for “capped call transactions.” These are essentially insurance policies against dilution, limiting the potential impact on shareholders should the notes be converted into stock down the line. This is a sophisticated move to appease investors worried about stock dilution.

The heart of the strategy lies in what DigitalOcean plans to do with the rest of the cash. They are pairing the new note issuance with $440 million in term loans from their existing credit facility (or $380 million, depending on the underwriters’ option exercise) to repurchase a whopping $1,131.3 million of their existing 0.00% convertible senior notes due in 2026. This debt juggling act allows DigitalOcean to push out its repayment schedule and potentially benefit from a more favorable interest rate environment (if rates rise, the fixed-rate debt becomes more attractive).

The conversion specifics are worth noting. Until May 15, 2030, conversion depends on certain conditions. After that, it’s a free-for-all. The initial conversion rate is 25.5317 shares per $1,000 note, setting the initial conversion price at approximately $39.17 per share – a 32.5% premium over the stock price on August 11, 2025. This premium gives investors an incentive to hold onto the debt, betting on DigitalOcean’s future growth.

DigitalOcean has the option to redeem the notes starting August 15, 2028, if its share price exceeds 130% of the conversion price. This offers a way out for DigitalOcean if the stock performs exceptionally well.

The capped call transactions, with an initial cap price of $66.51 (125% premium), are key to mitigating dilution upon conversion. Counterparties involved in these transactions are expected to engage in derivative activity, potentially influencing the stock price in the short term.

Simultaneously, DigitalOcean is executing privately negotiated repurchases of its 2026 notes. This could incentivize holders of the 2026 notes, who had hedged their positions, to unwind those hedges, potentially impacting the stock price as well.

Adding another layer, DigitalOcean plans to adopt a new stock repurchase program, authorizing up to $100 million in share buybacks. This move could signal management’s confidence in the intrinsic value of the company.

These securities have not been registered under the Securities Act and may not be offered or sold in the United States absent registration or an applicable exemption.

In essence, DigitalOcean is deftly managing its balance sheet, taking advantage of market conditions to optimize its debt structure and potentially reward shareholders. It’s a series of moves that demonstrate financial acumen and a strategic vision for the company’s future.

About DigitalOcean

DigitalOcean is the simplest scalable cloud platform that democratizes cloud and AI for digital native enterprises around the world. Our mission is to simplify cloud computing and AI to allow builders to spend more time creating software that changes the world. More than 600,000 customers trust DigitalOcean to deliver the cloud, AI, and ML infrastructure they need to build and scale their organizations.

Forward-Looking Statements

This press release includes forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act of 1934, as amended, including statements regarding, among other things, the completion of the offering, the capped call transactions, the note repurchase transactions, borrowings under the credit facility, the expected amount and intended use of the proceeds from the offering, the Repurchase Program and the potential impact of the foregoing or related transactions on the market price of the common stock or the trading price of the notes. Forward-looking statements represent DigitalOcean’s current expectations regarding future events and are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from those implied by the forward-looking statements. Among those risks and uncertainties are market conditions, the satisfaction of the closing conditions related to the offering and risks relating to DigitalOcean’s business, including those described under the caption “Risk Factors” and elsewhere in DigitalOcean’s filings with the Securities and Exchange Commission (the “SEC”), including in its Annual Report on Form 10-K for the fiscal year ended December 31, 2024, filed with the SEC on February 25, 2025, in its Quarterly Report on Form 10-Q for the fiscal quarters ended March 31, 2025 and June 30, 2025, filed with the SEC on May 6, 2025 and August 5, 2025, respectively, and the future quarterly and current reports that DigitalOcean files with the SEC. DigitalOcean may not consummate the offering described in this press release and, if the offering is consummated, cannot provide any assurances regarding its ability to effectively apply the net proceeds as described above. The forward-looking statements included in this press release speak only as of the date of this press release, and DigitalOcean does not undertake to update the statements included in this press release for subsequent developments, except as may be required by law.

DigitalOcean Prices Upsized 0 Million Convertible Senior Notes Offering