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Here’s why Spotify had to go public this year

A three-part play in a debt drama.

Jon Batiste performs at a piano onstage for Spotify. Ilya S. Savenok / Getty Images for Spotify

Spotify solved a messy debt problem posed by two of its shareholders in recent months — a deal first reported by Recode in January but that came into sharper focus on Wednesday when Spotify officially filed its paperwork to go public.

Two Spotify shareholders, TPG and Dragoneer, held what’s known as a convertible debt note that entitled them to more and more shares in the company if Spotify kept delaying its public listing. Working closely together, the pair late last year was able to convert that debt into equity and then sell their shares to Tencent, the Chinese internet giant eager to gain more of a foothold in the music company.

Spotify’s documents on Wednesday reveal how exactly that went down — in three batches:

  • First, in December 2017, TPG and Dragoneer sold about $300 million of their debt to Tencent for about five million shares in the company — which they promptly flipped to Tencent (at about a $20 billion valuation, meaning Tencent could lose money.)
  • Then, later that month, they sold another $110 million in a similar transaction. But there’s no indication that those shares were sold to Tencent.
  • And finally in January — likely after our first story — the remaining $628 million of debt was sold for about 9.5 million shares. Presumably, TPG and Dragoneer still hold those.

Spotify says in the filing that it now has no outstanding debt. But here’s the kicker: If Spotify didn’t go public by July 2 of this year, the filing says, then Spotify “agreed to offer to each noteholder the option to unwind the transaction” and issue new convertible debt notes.

So TPG and Dragoneer, once again, held some leverage.

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