Bitcoin (BTC) mining firm TeraWulf Inc. WULF stocks fell over 7% to $5.84 following the firm’s announcement of a $425 million offering of 2.75% convertible senior notes due in 2030.

VanEck head of digital assets research Matthew Sigel highlighted that WULF was the worst-performing share in VanEck Digital Transformation ETF (DAPP) on Oct. 24.

Sigel stated:

“Instead of Announcing an AI/HPC Customer, Which Investors Are Eagerly Awaiting, They Announced a Dilutive Convertible.”

The current decline in Terawulf’s share price is also a healthy retracement following a blistering 71% climb this month between Oct. 9 and Oct. 22.

Ernst & Young manager Daniel Marques shared on X that the price area around $6 is acting as “heavy resistance,” with strength indicators showing that this would be a challenging area to get through in the short term. He added:

“I expect a 20-30% cool off before the next move to $7-9. All part of the long term game.”

Expanding operations and repurchasing program

TeraWulf intends to allocate the funds raised from this offering to several key areas, with $115 million earmarked for the repurchase of common stock and an additional $51 million to finance capped call transactions designed to reduce potential dilution from the conversion of the convertible notes.

The remaining funds will support general corporate purposes, which may include working capital, strategic acquisitions, and the expansion of data center infrastructure to further develop the company’s high-performance computing (HPC) activities.

The notes will be convertible into cash, shares of common stock, or a combination of both, at the company’s discretion, based on a conversion rate of 117.9245 shares per $1,000 principal amount.

According to the announcement, this is equivalent to an initial conversion price of approximately $8.48 per share, representing a 32.5% premium over TeraWulf’s stock’s closing price on Oct. 23.

Additionally, the company has entered into capped call transactions, with a cap price of $12.80 per share — double the closing price on Oct. 23. A capped call is a type of derivative transaction that limits the potential loss of a counterparty selling an option to a company issuing convertible bonds.

The move aims to mitigate potential dilution and offset any cash payments exceeding the principal amount of the notes in case of conversion.

Notably, TeraWulf has concurrently launched a repurchase program, acquiring approximately 17.97 million shares of common stock for $115 million at the Oct. 23 closing price of $6.40 per share.

According to TeraWulf’s statement, this repurchase is expected to enhance value for existing shareholders by reducing the number of outstanding shares.

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