Spotify raises $1 billion in convertible debt

As Apple Music, TIDAL, Google Play Music and Spotify continue to battle for customers, the latter streaming service has turned to the TPG and Dragoneer investment firms and clients of Goldman Sachs to raise the funds required to overcome its competition.

The Swedish company has raised $1 billion (£695 million) in debt financing to enable greater spending on research, marketing and strategic acquisitions. Convertible debt differs to equity in that it doesn’t run the risk of lowering the company’s valuation.

However, Spotify is facing some strict and potentially dangerous conditions. The rate of annual interest on the debt has been set at five per cent, and will increase by one per cent every six months until the company goes public or a limit of 10 per cent is reached.

TPG and Dragoneer are also able to convert the debt into equity at a 20 per cent discounted rate of the share price Spotify sets in the event of an IPO. And if it doesn’t go public within 12 months, this discount will steadily rise.

The two investment firms will also be able to cash their shares out 90 days after the IPO. If Spotify has a bad year this will be bad for its employees and other investors, with the lockup period before they can sell lasting for 180 days.

However, if Spotify has a successful year it could significantly increase its value, and the strict terms of investment won’t be too costly. With the threat of well-funded Apple Music growing ever stronger, it’s clear why the risk has been taken.

[Via: Tech Crunch]

Patrick Hinton is Mixmag’s Digital Intern, follow him on Twitter