Spotify raises US$1 billion in debt

Just over one week after Spotify’s CEO Daniel Ek announced it had hit 30 million paying subscribers, and on the same day it launches in Indonesia, the audio streaming leader announced it has raised US$1 billion in convertible debt.

According to Spotify spokeswoman Marni Greenberg, the debt financing is from private-equity firm TPG, hedge fund Dragoneer Investment Group and clients of Goldman Sachs Group Inc.

Spotify, which was estimated to be worth US$8.53 billion in June 2015, is an infamously money-losing company. It reported losses of US$197 million in 2014 despite increasing revenue by 45%. Like many digital services, Spotify has turned to convertible debt, meaning bonds that can be exchanged for stock. This type of financing could be used as a bridge mechanism by the Swedish company as it readies another funding round.

A TPG representative told TechCrunchthe money will be spent on growth and marketing: “This financing gives them the strategic resources to further strengthen their leadership position,” the rep said.

In exchange for the financing Spotify has guaranteed TPG and Dragoneer a 20% discount to the share price should it undergo a public offering in the next year. If Spotify holds an IPO after 12 months TPG and Dragoneer will be able to convert the debt into equity by an additional 2.5% every six months.

Wall Street Journal has reported TPG and Dragoneer can cash out their shares as soon as 90 days after an IPO. It also reported Spotify will pay annual interest on the debt in the form of additional debt. The annual interest starts at 5% and increases by 1% every six months until the company goes public, or until it hits 10%.

The terms may seem exploitative but Apple Music’s growth is fast looking to eclipse Spotify’s and it needs to up its game. Considering that Spotify has grown by 10 million paying subscribers since Apple Music’s launch in June 2015, and that Apple Music has accrued 11 million since, the race between them is close. The pair are still ahead ofstreaming’s other players however; 1.35 million are paying for Tidal’s $19.99 Hi-Fi offering, Deezer has 6 million mostly in Europe, and Napster/Rhapsody has 3.5 million.

Spotify has previously hinted at an IPO in the next 24 months. Last month speculation grew that it could end up with Google buying it out. In February Spotify moved most of its data from its own servers around the world to the Google Cloud Platform (its music files remain with Amazon).

Google apparently began negotiations in 2014 to buy Spotify but price was a sticking point.