Spotify piles up $1 billion in debt to fuel expansion

It will be in Spotify’s interest to go public within a year.

In a deal that has been labeled by onlookers as “devilish” and “strict”, Spotify has raised $1 billion through convertible bonds, rather than the more traditional equity funding round.

The new debt comes attached with some rather restrictive terms related to Spotify going public with an IPO.

As per the terms of the agreement, investors will be able to convert their debt to shares at a 20% discount within the next year, if Spotify were to go public by then. This percentage will increase by 2.5% every six months after a year, till the time Spotify were to go public.

The debt attracts a yearly interest of 5%, which will increase every six months by 1%.

The gist of the contract is that Spotify has bound itself to a spot where things will start getting costlier after a year. It would be in the interest of the company to go public as soon as possible.

As for the monies that have come from the new round of funding, Spotify’s official cryptic line is that they will be spent on marketing and growth. What growth entails is unclear.

As per Peter Kafka from Recode, the monies could possibly be used to purchase more rights so that Spotify can acquire more video content. Another stream of thought is that Spotify wants to have enough balance so as to compete with Apple Music. Although it is significantly ahead of Apple, its coffers run deep, although some have suggested otherwise.

Whatever be the reason, as per the Wall Street Journal, Spotify had “more than $600 million left” in the bank before the cash injection. Adding $1 billion to it would give the company a sizeable war chest for the year ahead.

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