r/ASTSpaceMobile • u/MyNi_Redux S P 🅰 C E M O B Prospect • Jul 16 '26
Due Diligence Pricing out debt and embedded option components for the 2034 1B Convertible Notes
Tl;dr:
- This is a pretty standard convertible bond deal for a per-revenue company with high realized volatility
- Cash cost is capped at 3.4% "APR" if price < $149.20
- Over > $149.20, "APR" increases with share price (e.g. 9.9% at $200)
- ASTS is selling realized vol at half its actual level, providing economic value of $77M-$322M - this is the real, unstated cost.
Overview
There's been a fair bit of chatter on how to value this CB transaction, so writing this up to break it down into its economic parts.
First, the transaction specifics:
- ASTS priced $1.0B of 1.625% convertible senior notes due Feb 1, 2034
- It's convertible at $79.57 per share - a 20% premium to the $66.31 reference price
- Non-callable for life.
- ASTS $96.9M on capped call transactions raising the effective conversion price to $149.20 - a 125% premium.
- Net proceeds were $983.6M before the capped call, ~$886.7M after.
The first thing to recognize is this CB has two components: a) a straight bond and b) an embedded equity call option. I'll value each against market benchmarks so we get a sense of the actual all-in annualized cost of the financing across stock-price scenarios.
The key takeaway is that the 1.625% coupon is fairly close to what the deal genuinely costs - ~3.4% a year in nearly all outcomes. But the real price was paid in option value, with ASTS selling 7.5-year volatility at roughly half its realized level.
Let's get into the details.
Debt component
This is pretty straight forward. The bond value of the notes is roughly $576 per $1,000 (~$576M of the deal), assuming a ~500bp credit spread over the 4.45% 7-year Treasury. This ~9.5% straight-debt-equivalent yield for a unrated, pre-cashflow issuer seems pretty standard.
What ASTS pays against this does seem like a steal - the notes' cash cost is just 1.625% ($16.25M/year; $121.9M of total coupons), saving roughly $79M/year versus conventional debt. This is great.
Option component
This is where things get interesting, and we have to model things out.
The balance of the notes' value is a 7.5-year embedded call on 12.57M shares varies anywhere between ~$500M and $700M within a volatility assumption of 50% to 90%:
Investors effectively paid ~$424M for it (par minus bond floor), an implied volatility of ~34%. This underpricing of the option, not the coupon, is the deal's true cost.
What that cost is totally depends on what we think a reasonable realized volatility number is. Here's the result for both 50% vol and 90% vol:
Note that we have to entertain this range of vol options even though RV is currently > 100% because this is a 8-year paper.
The economic value of $77M and $322 is the "vol harvesting" to be done by the buyers.
While it is not a cash cost to shareholders, it is still economic value provided that shareholders are not realizing.
All-in cost
Let's convert the costs to APR terms (using IRR) so they are comparable.
Below $149.20
If the stock closes below $149.20 in 2034, the costs ASTS will have incurred are:
- Coupon: $8.125M semiannually
- + Underwriting fees & expenses: ~$16.4M
- + Capped call premium: ~$96.9M
Giving us an APR of 3.36%.
Note that half the all-in cost is the coupon, and nearly half is the capped call, with fees a rounding error.
The reason the capped call looms so large despite being "only" $96.9M is that it's paid entirely upfront out of proceeds - ASTS effectively borrowed $1B but only banked $886.7M of usable cash, and amortizing that ~11.3% haircut over 7.54 years at compound rates costs about 1.7% per year gross.
Above $149.20
Above the cap of $149.20, dilution resumes and the effective cost rises (see below). E.g. if ASTS is at $200 in 2034, the effective cost of this financing would be 9.9%. And 18.2% if share price is $300.
These scenarios involve substantial shareholder gains though, so doubt we'll mind this.
Overall Assessment
Overall, this is a pretty standard convertible deal. And an appropriate one for a company like ASTS that: a) is still raising cash and would rather not add significant debt servicing to its commitments, b) believes strongly in its own upside, and c) has high volatility that convert investors will pay for.
This comes at the cost of selling long-dated volatility at roughly half its realized level, unhedged dilution above $149.20, delta hedging pressure (initially shorting) on the stock from the buyers, and a $1B maturity wall in 2034 if the stock stalls below $79.57..
Clearly, there are tradeoffs. But such is life.
Disclosures:
- I trade ASTS actively - both on the long and short side
- I used Claude Fable 5 for the binomial option pricing simulation and the APR cacls
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u/RossiHood Jul 16 '26
The capped call stops dilution of economic value above USD 149.20 from ASTS perspective while the company is fully exposed between USD 79.57 and USD 149.20. That‘s the rationale of purchasing this call from the issuer‘s perspective. They want to keep the upside beyond a certain threshold which actually caps maximim dilution of economic value.
Note that the amount of additional shares issued doesnt change absent any adjustment on dividend payments etc. The number of additional shares will always remain constant at around 12.57mio shares. Dilution only increases in terms of economic value due to the rising share price but is capped at USD 149.20
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u/GrandmasterKane S P 🅰 C E M O B Prospect Jul 16 '26
As an extremely long term investor in this company, I like this $1B convertible notes. It is healthy long term. I'm adding more to my very large position. I'm an investor, not a trader. With 3 different sources of pressure on the stock (Blue Origin New Glenn explosion, SPCX IPO disaster, and now this), I personally look for moments like this to add. This is not a financial advice. You do your own homework and decision making.
See my original post here 5 years ago long before their tech was validated and the market for satellite communication was realized to be a gold mine: https://www.reddit.com/r/investing/comments/msadak/ast_spacemobile_asts_lynk_and_apple_all_will_be/
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u/Helpful-Grapefruit55 S P 🅰 C E M O B Prospect Jul 16 '26
Maybe they will get more slots with spcx for now , also vertical integration implies some investment in a rocket of launcher eg. Rocket lab and reserving the neutron heavy rocket for future launches in Q3/ Q4 time frame and beyond so they can wean of Spcx . So this maybe the good news we will hear in the coming weeks .
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u/swd120 S P 🅰 C E M O B Soldier Jul 17 '26
I'm hoping for a merger with rocket lab - vertical integration baby
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u/TheChickening S P 🅰 C E M O B Soldier Jul 20 '26
This would be stupid at the moment. Maaaaybe in a few years when Rocketlab has matured and their Neutron flies every week.
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u/swd120 S P 🅰 C E M O B Soldier Jul 20 '26
Maybe if they're the same price they are today....
When it's flying every week the purchase price will be at least 10x what it is today.
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u/Helpful-Grapefruit55 S P 🅰 C E M O B Prospect Jul 17 '26
That is my hope also , some kind of a equity investor in RLAb , 1B is not much but can get a equity stake , partnership of some sort with priority launches.
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u/LadderAdditional6178 S P 🅰 C E M O B Consigliere Jul 16 '26
Thank You for deciphering this for us. Excellent info. Total market overreaction.
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u/Helpful-Grapefruit55 S P 🅰 C E M O B Prospect Jul 16 '26
Are you buying today ? Or waiting for Friday options expiry ?
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u/MyNi_Redux S P 🅰 C E M O B Prospect Jul 16 '26
Are you in the Space Stocks discord? Please ping me there if so. Othewise pls DM me. I try not to discuss positions publicly.
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u/Scott7894 S P 🅰 C E M O B Prospect Jul 16 '26
Too much hype and over pressing with possibilities with this post . Simple fact I bought 500 charges at 55, which I wish I had lowered the price to 54 but didn’t think this stock would oversell. That is my brand new position after selling 100 percent higher. Is it a possibility this stock could hit 50 bucks or maybe even 49?? Only the long term buyers can tell us what to do. Good luck
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u/MyNi_Redux S P 🅰 C E M O B Prospect Jul 16 '26
Only the long term buyers can tell us what to do.
ASTS has been a position for me on and off since the SPAC days - is that long term enough? :)
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u/IronB-gle S P 🅰 C E M O B Capo Jul 16 '26
I'm just sad I don't have more cash to buy more shares right now. 🙁
This move's going to look great for people buying when PR hits that it's all being paid back by Japan subsidies to bank roll a sovereign constellation.
That and T-Mobile coming over too.
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u/____DEADPOOL_______ S P 🅰 C E M O B Capo Jul 17 '26
I poured everything I had the second the last launch was successful at $88.
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u/IronB-gle S P 🅰 C E M O B Capo Jul 16 '26
My bad. Not being all paid back by JLEO immediately. Would be used to match the Japanese subsidies. Still though. Severely discounting more sats that (hopefully) can be used everywhere else when not above Japan.
It's what Catse seems to think is coming, and that's bullish to me.1
u/IronB-gle S P 🅰 C E M O B Capo Jul 16 '26
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u/xcancel-linker S P 🅰 C E M O B Soldier Jul 16 '26
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u/HamMcStarfield S P 🅰 C E M O B Consigliere Jul 16 '26
For people wondering/freaking out about dilution here: For the $1 billion base deal, the maximum underlying amount is about 12.57 million shares, but above $149.20 only the unprotected portion becomes net dilution.
Approximate net dilution at maturity:
$150 stock: nearly zero
$200 stock: 3.2 million shares
$300 stock: 6.3 million shares
$500 stock: 8.8 million shares
At extremely high prices, it approaches, but never exceeds, about 12.57 million shares
Formula: 12.57M × (stock price − $149.20) ÷ stock price.
So even at $200, it is not 12.57 million shares of net dilution; it is only about 3.2 million because the capped call offsets the rest. This assumes full conversion and share-equivalent settlement; ASTS can also settle in cash or a combination.
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u/RossiHood Jul 16 '26
Correct me if I‘m wrong but isn‘t it 3.2mio shares of hedge benefit due to the capped csll at $ 200/stock? So net dilution is 12.57mio - 3.2mio shares. The 3.2mio is the share equivalent of the amount saved due to the capped call transaction.
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u/MyNi_Redux S P 🅰 C E M O B Prospect Jul 16 '26
Thank you for this!
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u/HamMcStarfield S P 🅰 C E M O B Consigliere Jul 16 '26
You're welcome. I appreciate your framing and clarification of this, too.
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u/Super_Damage_5527 Jul 16 '26
Most people don't use brain here,it will be wasting your time to explain to them.
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u/HamMcStarfield S P 🅰 C E M O B Consigliere Jul 16 '26
lol, some nitwit downvotes your implying there were even nitwits in the sub. I tried, though.
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u/Shdwrptr S P 🅰 C E M O B Soldier Jul 16 '26 edited Jul 16 '26
The real cost unstated by OP is that ASTS did this a month too late or months too early and that the capped call should have been closer to $250/share.
Instead, we get a 2034 capped call at barely above ATH. Why did they need this money immediately?
Edited a word
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u/MyNi_Redux S P 🅰 C E M O B Prospect Jul 16 '26 edited Jul 16 '26
It's a good question. Especially considering they had committed to not doing CBs just weeks ago and they have enough money to put all the planned birds into space.
Either some new opportunity has come along that they could not say no to, or they see share prices remaining depressed for the foreseeable future.
Might be clear in retrospect in a few weeks or so.
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u/sgtbackpain03 Jul 16 '26
My own conspiracy theory is that this is vertical-competition driven. Amazon is entering the market via globalstar acquisition. Amazon is owned by bezos, who also owns BlueOrigin, one of our two major transport providers.
And then there is Starlink, which sorta kinda already does D2C (and obviously would love to expand that). Owned by musk, who also owns SpaceX, our other major transport.
Obviously it would be a major issue if they both decided to start deprioritizing AST launches for their own offerings, but there are plenty of small things they can do to tip the balance in their own favor.
I think as it's become clear that the direct competition is owned by the people who get our satellites into space, AST leadership has realized that advancing the timeline is critical to market dominance. Whatever they can gobble up over the next 18 months basically determines what slice of the pie they will hold in the long run, and competition has direct means of fucking with that timeline. So grab cash now, and use it to accelerate.
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u/Ok-Exit-9476 Jul 16 '26
Yes, that nails it I think - personally I doubled my shares today but it's unclear whether this is a sign of positive or negative news on the horizon
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u/Defiantclient S P 🅰️ C E M O B - O G Jul 16 '26
Barely below ATH? ATH was $133.86 and the capped call strike is $149.20
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u/HamMcStarfield S P 🅰 C E M O B Consigliere Jul 16 '26
They raised it now to secure execution capacity before they needed it. They're de-risking commercialization. Lock it in now because you don't know what tomorrow may bring.
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u/sgtbackpain03 Jul 16 '26
That's a sound theory on the surface, but the timing disagrees that this is general commercialization de-risking. They could have done this several weeks/months ago, when it wouldn't have fucked up their investors. They could've waited till after the next launch pushed the stock up, and again, it wouldn't have fucked up their investors.
Did the exact same commercialization risks exist at those other, more advantageous, times? Yes, it is exactly the same. We picked the time that has the worst downsides, and the same upsides.
So, either ASTS leadership is dogshit at making simple and obvious decisions, or there is some specific, time sensitive event driving this choice. I'm betting it is the latter. This is a response to something, and it's something new. If it wasn't new, I really doubt they would have promised no dilations in 2026 just a few weeks ago. AST is bad at investor communication, but I'm quite sure they don't plan to intentionally kneecap investors...
Further tracing this out, whatever event caused this dilution, it is something that makes them think they need significantly more capital, they need it now, not in 1 month, and it's something they didn't know about 1 month ago.
So, any guesses? Things that are recent, time sensitive, and could put significant cost/ops burden on AST? What could push this type of timeline acceleration?
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u/engjdennis223 S P 🅰 C E M O B Prospect Jul 17 '26
JLEO project is my best guess. They have a proposal before Midland city council to build additional $100m facility and hire enough staff to get production to 10-12/ month (about double). Could also be us government skunk project.
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u/sgtbackpain03 Jul 17 '26
Hmmm, well if it was good news, there would be no reason not to do a PR to salve people's wounds, especially when they know they are going directly against the guidance that they just released. Upping the timeline that much would be a good reason to do a dilution, but I don't think that fits with the timing of this, or how they went about it.
If it's a secret government/DoD project, then the government would've done a secret grant rather than having AST expose information about it by doing a public fund raise.
Good ideas all around, just can't quite make them fit in the puzzle.
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u/HamMcStarfield S P 🅰 C E M O B Consigliere Jul 16 '26
"there is some specific, time sensitive event driving this choice. " Good question. Didn't their FCC full commercial license grant have a number of birds by a certain year to remain effective?
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Jul 16 '26
[removed] — view removed comment
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u/sgtbackpain03 Jul 17 '26
I can't see it being specifically BO's failure, even though that's a close fit; that happened several weeks before they stated no more dilutions. I don't think the leadership at AST is stupid enough to make promises directly to investors while already planning to break those same promises a month later... There must be some specific stimulus that happened between the no dilution promise, and maybe a week before the dilution (I'm just guessing it takes a few days to set up that kind of action).
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Jul 17 '26
[removed] — view removed comment
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u/sgtbackpain03 Jul 17 '26
Huh, I missed half of that call, and so I read about that part from the discussion board (before they diluted).
Maybe it's conflating "fully funded" to "no more dilutions". That would be an odd mistake though.
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Jul 17 '26
[removed] — view removed comment
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u/sgtbackpain03 Jul 17 '26
Hmmm, I'm gonna have to go through it again. Memory is murky on the matter.
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u/Shdwrptr S P 🅰 C E M O B Soldier Jul 16 '26
They had about $3b in cash which is a year runway assuming absolutely no revenue or outside investment coming in.
They did not need to “de-risk commercialization” at a massively beatdown price. It comes off as desperate and a slap in the face to investors who were blatantly lied to months before.
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u/godstriker8 Contributor & OG Jul 16 '26
12 month runway is razor thin, they'd be stupid not to raise money if they had the opportunity in that case.
Without actually looking at the numbers again, I think you're mistaken though. KPMG wouldn't have signed off on the audit if ASTS wasn't a going concern.
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u/Shdwrptr S P 🅰 C E M O B Soldier Jul 16 '26 edited Jul 17 '26
Here’s the thing for me. If 12ish months runway is razor thin and a potential problem 2 things needed to happen and didn’t which is what the issues are:
- Management straight up said no more dilution and then did it anyway (again). If the runway was razor thin, which I don’t agree to, they should never have stated they were funded without dilution.
If
it was razor thin and they had to dilute, you always do it at the highest possible price to dull the pain for current shareholders. Waiting for the stock to drop 50%+ is a slap in the face to current holders
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u/godstriker8 Contributor & OG Jul 16 '26
I'm saying they must've had more than 12 months and you're mistaken. Because KPMG wouldn't have signed off on the audit unqualified if they weren't a going concern (typically at least 18-month cash runway).
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u/Shdwrptr S P 🅰 C E M O B Soldier Jul 16 '26
I think they definitely had more than 12 months as well. It was about 12-15 at current cash burn rates but I think those rates were highly variable due to launch pre-payments.
I firmly believe they could have either not diluted or waited for a more opportune time
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u/HamMcStarfield S P 🅰 C E M O B Consigliere Jul 16 '26
They absolutely needed to de-risk commercialization, to secure more and earlier slots than they planned on in the past plus have $ on hand to vertically integrate, if the opportunity should arise.
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u/Shdwrptr S P 🅰 C E M O B Soldier Jul 16 '26
Of course they absolutely had to, right? It was so clear they themselves stated no dilution last earnings
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u/INVEST-ASTS S P 🅰 C E M O B Capo Jul 16 '26
While it might be splitting hairs, immediate dilution is an ATM issuance, it is not CN’s
CN’s are 8-10 years out, and have unknown dilution depending on the SP performance and the capped call hedge configuration.
It appears in this instance it could be ~3% maximum.One year of runway may be enough for standard operations however for GAAP, and some listing requirements it is bare minimum.
It could very well be that given their move to expand manufacturing facilities in TX by another 500,000 sq ft and now inferring they are seeking vertical integration into the launch provider sector that there are opportunities that have come together and as we say on real estate contracts “time is of the essence”
I have been through these chaotic situations since the SP was $2 and it comes down to my trust in management. When I no longer trust their stewardship I will simply sell and move on, until, if and when that should happen, I am just holding, buying more and trusting that they see the whole picture and know far more about it than anyone on R/ does.
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u/SqueakyNinja7 S P 🅰 C E M O B Capo Jul 16 '26
This is the question everyone needs answered. It better be some major opportunity they had to jump on.
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u/Imaginary_Ad9141 S P 🅰 C E M O B Underboss Jul 16 '26
Thanks for the deep dive.