Cloudflare Inc. Issues $2.50B 0% Convertible Notes Due 2031

What Happened

• Cloudflare, Inc. announced on August 13, 2026 that it issued $2.50 billion aggregate principal amount of 0% Convertible Senior Notes due August 15, 2031. The notes pay no regular interest (principal does not accrete) but may bear special interest in limited circumstances (e.g., reporting failures or restrictions on tradability). The initial conversion rate is 2.0123 shares of Class A common stock per $1,000 principal (≈ $496.94 per share), about a 60% premium to the $310.59 last sale price on August 10, 2026. Net proceeds were about $2,462.3 million after fees.

Key Details

• Notes: $2.50B aggregate principal, 0% interest, maturity August 15, 2031; convertible into Class A shares (conversion rate 2.0123 shares/$1,000; initial conversion price ≈ $496.94).
• Proceeds and hedges: Net proceeds ≈ $2,462.3M; $259.5M used to buy capped‑call transactions to offset dilution and limit cash payments on conversion.
• Capped calls: initial strike ≈ $496.9438 (matches conversion price); cap price $854.1225/share (≈175% premium to $310.59); capped calls are separate hedges and do not change note terms.
• Convertibility and redemption: Holders can convert in specified windows before May 15, 2031 (e.g., if stock price ≥130% of conversion price for required periods); from May 15, 2031 until shortly before maturity holders may convert at any time. Company generally cannot redeem before Aug 20, 2029 (except cleanup redemption < $200M outstanding); optional redemptions require share‑price triggers.
• Related financing items: Initial purchasers (Goldman Sachs & Co. LLC and Morgan Stanley & Co. LLC) bought $2.175B and exercised a $325M option in full. The Company also entered a Second Amendment to its Revolving Credit Agreement capping the cash amount excluded in a leverage ratio calculation at $2.0B.

Why It Matters

• For investors, the offering raises significant liquidity (~$2.46B net) for general corporate uses while limiting near‑term cash interest expense (0% notes). However, the notes create potential future dilution if converted (conversion price ≈ $496.94) and capped calls only offset dilution up to the cap price ($854.12). The conversion and redemption mechanics tie potential dilution and cash obligations to Cloudflare’s future stock price and specific events. The credit‑agreement amendment (cash exclusion cap = $2.0B) affects how Cloudflare’s leverage covenant is calculated and can influence covenant headroom.