onsemi (NASDAQ: ON) announced plans to offer $1.3 billion in convertible senior notes due 2031 in a private offering to qualified institutional buyers. The semiconductor company also granted initial purchasers an option to buy an additional $200 million of the notes within 13 days of issuance.

The company intends to use proceeds to pay for convertible note hedge transactions, repurchase up to $400 million of its common stock in concurrent privately negotiated transactions, and for general corporate purposes including debt repayment. The notes will be senior unsecured obligations guaranteed by certain subsidiaries and pay interest semiannually until maturity on May 1, 2031.

onsemi will satisfy conversion elections by paying cash up to the principal amount and delivering cash, shares, or a combination at the company's discretion for any excess conversion obligation. The initial conversion rate will be determined through negotiations with purchasers.

The company expects to enter convertible note hedge agreements with initial purchasers or affiliates to reduce potential dilution and offset cash payments exceeding principal amounts upon conversion. onsemi also plans warrant transactions related to the same number of shares, which could have dilutive effects if the stock price exceeds warrant strike prices at expiration.

Hedge counterparties may purchase shares or enter derivative transactions when establishing hedges, potentially affecting the stock price during or after note pricing. They may also modify hedge positions through various transactions before note maturity, which could impact conversion ability and value.

The notes and any shares issuable upon conversion have not been registered under the Securities Act and may only be offered or sold under applicable exemptions from registration requirements.