Snowflake Inc. (NYSE:SNOW) said Tuesday it priced an upsized $3.75 billion private offering of 0% convertible senior notes.

The offering includes $2 billion of notes due in 2029 and $1.75 billion due in 2031. Snowflake had previously planned to raise $3.5 billion.

The company also granted buyers options for up to another $550 million of notes. The offering is expected to close Oct. 1.

Conversion Could Lead to Share Dilution

The notes do not carry regular interest. However, holders can convert them under certain conditions into cash, Snowflake shares or a combination of both, at the company's election.

The 2029 notes carry an initial conversion price of about $500.38 per share, a 52.5% premium to Snowflake's Sept. 28 closing price. The 2031 notes have an initial conversion price of about $483.98, representing a 47.5% premium.

As a result, the financing is not immediately dilutive. However, it could lead to future dilution if Snowflake's stock rises enough for holders to convert and the company settles those conversions with shares.

Snowflake Moves to Limit Dilution

Snowflake entered into capped-call transactions designed to reduce potential dilution from the convertible notes. The company expects to spend about $383.5 million on those transactions.

The capped calls have an initial cap price of $820.30 per share, or 150% above Snowflake's Sept. 28 closing price.

Snowflake expects net proceeds of about $3.70 billion, rising to roughly $4.24 billion if buyers fully exercise their additional-purchase options.

Company Refinances Existing Notes

Snowflake plans to use about $548.3 million of the proceeds to repurchase roughly $261.8 million in principal of its 0% convertible notes due in 2027.

The remaining proceeds may support general corporate purposes, including stock repurchases, additional debt repurchases, acquisitions or strategic investments.

SNOW Price Action: Snowflake shares were down 0.57% at $326.24 at the time of publication on Tuesday, according to market data.