Zillow is seeking to raise $1.1 billion in capital through a new offering of senior notes, essentially short-term bonds, as it pursues a series of ambitious goals over the next three to five years, executives announced Wednesday.

The company will pay interest semi-annually on the notes, with full payment in 2024 or 2026 coming in the investors choice of cash, Class C capital stock or a combination of both. A portion of the funds raised – approximately $150 million – will be used to pay the cost of the capped call transactions. Essentially, if the stock skyrockets over a certain amount, Zillow can pay the investors back early with the cash so it doesn’t dilute the stock for existing shareholders.

“Zillow Group intends to use the remainder of the net proceeds from the 2024 notes and the 2026 notes for general corporate purposes, which may include working capital, sales and marketing activities, general and administrative matters and capital expenditures,” the company said in a press release.

Zillow is offering $600 million of 0.75 percent convertible senior notes due in 2024 and $500 million of 1.375 percent convertible senior notes due in 2026. Initial purchasers have a 30-day option to purchase up to an additional $90 million of the 2024 senior notes and $75 million of the 2026 notes. The sale of notes is expected to close on September 9, 2019.

The 2024 notes will pay a fixed interest rate of 0.75 percent while the 2026 notes will pay a fixed interest rate of 1.375 percent, according to Zillow. The company expects to raise $582.2 million from the 2024 notes – or $681.1 million if the initial purchasers exercise their options to purchase additional notes – and $493.5 million from the 2026 notes – or $567.5 million if purchasers exercise their options.

Zillow hasn’t been shy about ambitious goals, which CEO Rich Barton compared on a recent earnings call to the company’s “moon landing.”

Zillow Offers will be live in 26 markets in 2020 – it’s currently live in 15 – and Barton has previously said he believes Zillow Homes could be a $20 billion business. The company’s short-term goal over the next three to five years is to get to roughly 60,000 transactions a year, which would still only be one percent of all transactions. Zillow President Jeremy Wacksman said on a recent investor call that’s just a step along the way and that Zillow Offers can go beyond that.

The company currently has two revolving credit lines of $500 million each, with $409.8 million drawn on those credit facilities as of the end of the second quarter. It’s not explicitly clear what the company will use the $1 billion for, but it will certainly help as it continues to grow to new markets with Zillow Offers and ramp up its mortgage company, as well as future plans to offer title and escrow services.

Email Patrick Kearns

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