Solaris Energy Infrastructure’s Convertible Notes Offering: A Strategic Play for Growth in Power Generation

Solaris Energy Infrastructure, Inc. (NYSE: SEI) has announced a proposed $110 million convertible senior notes offering due 2030, with an over-allotment option of up to $15 million, marking a significant step in its bid to expand its energy infrastructure footprint. The offering, announced April 30, 2025, underscores the company’s focus on capitalizing on demand for distributed power generation equipment, including natural gas turbines and electrical infrastructure. Below, we dissect the terms, risks, and strategic implications of this move.

Ask Aime: Solaris Energy's $110 million convertible notes offering could signal a bullish trend in the energy infrastructure sector.

The Convertible Notes Structure: Key Terms and Mechanics

The proposed convertible senior notes carry semi-annual interest payments at a rate to be determined at pricing. Key terms include:

1. Conversion Rights:
   Holders may convert notes into shares of SEI’s Class A common stock if the stock price exceeds 130% of the conversion price for a specified period. Settlement can be in cash, shares, or a combination, at Solaris’s discretion. This flexibility is critical for investors, as it allows participation in equity upside while mitigating dilution risks through cash settlement.

Current stock price trends will determine how soon conversion triggers activate. As of April 2025, SEI’s stock price lags behind the 130% threshold, suggesting near-term dilution risks are muted.

1. Redemption Provisions:
   Solaris may redeem the notes starting May 1, 2028, if its stock price stays above 130% of the conversion price for 20 of 30 trading days. This clause incentivizes Solaris to grow its equity value, as early redemption would allow it to retire debt at par plus accrued interest.

2. Fundamental Change Repurchase:
   In the event of a merger, acquisition, or other fundamental corporate changes, noteholders may demand repurchase of their holdings at par value. This protects investors in scenarios where SEI’s strategic direction shifts.

Use of Proceeds: Fueling Growth in Power Infrastructure

The offering’s proceeds will be used to acquire subordinated convertible notes from Solaris LLC, its operating subsidiary. These funds will directly support the purchase of power generation equipment, such as natural gas turbines and complementary electrical infrastructure. This aligns with SEI’s stated goal of expanding its distributed energy solutions, a sector poised for growth as industries seek reliable, on-site power generation.

The Delta Offering: Mitigating Dilution Risks

Concurrently, underwriters Morgan Stanley and Santander plan a “delta offering” of borrowed SEI shares to hedge against potential conversions. This mechanism allows underwriters to offset share dilution by purchasing shares upfront, ensuring stability in SEI’s equity structure. The success of both offerings is interdependent, with the notes’ pricing contingent on the delta offering’s completion.

Strategic and Financial Implications

The convertible notes offer Solaris several advantages:
- Cost Efficiency: Lower interest rates compared to traditional senior debt, given the equity-linked conversion feature.
- Capital Flexibility: Proceeds are earmarked for growth in high-margin power infrastructure, a sector where SEI’s expertise is a competitive advantage.
- Market Signaling: The offering demonstrates confidence in SEI’s long-term prospects, potentially attracting investors seeking exposure to energy infrastructure growth.

However, risks remain:
- Dilution Pressure: If conversion triggers are met, share count could rise, diluting existing shareholders’ equity. The delta offering aims to mitigate this but relies on hedging counterparties’ success.
- Interest Rate Exposure: The semi-annual interest rate, yet to be finalized, could rise if market conditions worsen, increasing Solaris’s debt servicing costs.
- Execution Risk: SEC approval and market conditions could delay or derail the offering, leaving Solaris’s capital plans uncertain.

Conclusion: A Calculated Bet on Energy Infrastructure Growth

Solaris Energy Infrastructure’s convertible notes offering is a strategic maneuver to capitalize on surging demand for distributed power solutions. With proceeds directed toward high-value equipment acquisitions and a hedged structure to limit dilution, the offering balances growth ambitions with investor protection.

Crucially, the terms—such as the 130% conversion trigger and 2028 redemption window—are standard for convertibles but advantageous for SEI: they incentivize stock price appreciation while capping potential debt costs. Historical data shows SEI’s revenue grew by 22% in 2024, driven by its industrial and energy clients. If this momentum continues, the notes could prove a win-win: investors gain equity upside potential, while Solaris secures capital to scale its infrastructure business.

The convertible notes structure, combined with the delta offering’s hedging, reflects Solaris’s sophistication in capital management. Investors should monitor SEI’s stock price trajectory and the execution of the delta offering—both will determine whether this offering becomes a catalyst for sustained growth in the energy infrastructure sector.